Question

A Toyota Corolla in 1990 was $15,000 while it was $20,000 in 1999. Some of the increase may have been due to inflation. To know exactly how much the price of Toyota Corolla (due to reasons other than an overall inflation such as increasing popularity that leads to larger profit margins) has changed over years, a market analyst tries to calculate both prices of a Corolla in 1990 and 1999 in terms of 2003 dollar. Suppose CPI was 100 in 1990, 125 in 1999 and 200 in 2003.

* Please write down the formulae and solution.

1. How much is a 1990 Corolla worth in 2003 dollar?

A) $30,000 B)$7,500. C)$15,000. D) $20,000

2. How much is a 1999 Corolla worth in 2003 dollar?

A)$30,000. B)$12,500. C)$32,000. D)$20,000

3. We can conclude that the price of a Corolla has increased from 1990 to 1999 even after adjusting for an overall inflation.

A) TRUE B) FALSE

4. An ice-cream cone costs $1.50 today (in 2004). How much did it cost in 1982 (in 1982) dollar? Suppose the price level in 2004 is 200 and the price index in 1982 was 150.

A) $0.75. B) $1.13 C)$2.00. D) $1

Answer 1