Question

1. The increase in gas prices and the increase in food prices are likely unrelated because...

1. The increase in gas prices and the increase in food prices are likely unrelated because gas is not an input into the production of food.

True

False

2. The increase in gas prices in 2010 and 2011

has increased the CPI.

has led to a higher inflation rate.

has increased the PPI.

All of the above are correct.

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Homework Answers

Answer #1

1. False. Food prices increase with increase in gas prices. This is because food has to travel great distances which increase transportation cost. Since increase in oil prices is followed by increase in gas price and this in turn increases the demand for bio-fuels. Bio-fuels are produced from agricultural products as input which increases the food prices.

2. All of the above are correct. The increase in gas prices in 2010 and 2011 increased CPI due to resultant increase in food prices, increased CPI resulted into higher inflation rate of 4.8%. Increase in gas prices as a main input in production process increased the PPI. Hence, all the options are correct.

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