Question

How do i calculate/solve this question

1. The price of a dozen eggs in 1975 was $0.77. The price of a dozen eggs today is $3.05. GDP Deflator in 1975 was 34.46. GDP Deflator today is 116.44. If you use GDP deflator to bring the price of eggs from 1975 into 2013 dollars, you
find that the $0.77 from 1975 is worth...

ANSWER: 2.60 today, which means that the real cost of buying eggs has increased

2. The price of a gallon of gasoline in 1975 was $0.53. In 2014 the price of gasoline was $3.55. In 1975 CPI was 53.8. CPI in 2014 was 234. Which of the following is correct?

aNSWER: on average, you would need $2.31 in 2014 to buy what $0.53 would buy in 1975. Therefore, the price of gasoline has risen in real terms

Not sure how to solve or show work for this.

Answer 1

1. ANSWER: 2.60 today, which means that the real cost of buying eggs has increased

Price in 1975 = $0.77

GDP deflator in 1975 = 34.46

GDP deflator today = 116.44

You find that the $0.77 from 1975 is worth = (116.44 ÷ 34.46) * $0.77 = $2.60

It implies the real cost of buying eggs has increased.

2. ANSWER: on average, you would need $2.31 in 2014 to buy what $0.53 would buy in 1975. Therefore, the price of gasoline has risen in real terms

Price of gasoline in 1975 = $0.53

Price of gasoline in 2014 = $3.55

GDP deflator in 1975 = 53.8

GDP deflator 2014 = 234

Cost of gallon gasoline in 2014 = (234 ÷ 53.8) * $0.53 = $2.31

The price of gasoline increased in real terms from 1975 to 2014