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# Inflation Problems

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Everyone complains about the high price of gasoline. You may have heard some adults talk about the "good old days" when gasoline sold for about 30 cents a gallon. Those "good old days" were the 1960s and early 1970s. How "good" were they? In real terms, how high is the current price of gasoline? Use the following data from the National Transportation Statistics 2002 report by the Bureau of Transportation Statistics to answer these questions. The base year for the CPI is 1983. Recall that in the base year the CPI is 100.

[see attachment for data]

7.1 What is the price of a gallon of gasoline in 1960 in 1983 dollars?

7.2 After adjusting for the effects of inflation, in which year was gasoline the cheapest?

7.3 The orange points (square symbol) in this graph [see attachment for graph] represent the prices of gasoline in current dollars between 1960 and 2000. Calculate the real price of gasoline (the price after adjusting for inflation) and place green points (triangle symbol) on the graph to plot the price of gasoline in 1983 dollars. Round to the nearest tick value on the graph. Line segments will automatically connect the points.

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#### Solution Preview

Chapter is on Inflation

7.1
Everyone complains about the high price of gasoline. You may have heard some adults talk about the "good old days" when gasoline sold for about 30 cents a gallon. Those "good old days" were the 1960s and early 1970s. How "good" were they? In real terms, how high is the current price of gasoline? Use the following data from the National Transportation Statistics 2002 report by the Bureau of Transportation Statistics to answer these questions. The base year for the CPI is 1983. Recall that in the base year the CPI is 100.

________________________________________
Year Retail Price of Gasoline
Per Gallon (Current dollars) Consumer Price Index
________________________________________
1960 \$0.31 30
1970 \$0.36 39
1980 \$1.25 82
1990 \$1.16 131
2000 \$1.51 172

What is the ...

\$2.49