Provide the calculations please ols 16.pdf 10% Difficulty: 2 Medn Learning Objec

Question

Provide the calculations please ols 16.pdf 10% Difficulty: 2 Medn Learning Objective: 16-02 Show how the CPI is used to adjust dollar amounts to eliminate the efects of inflati Topic: Adjusting for Inflation Frank 16 The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasolineand the real price of gasoline A. increased; also increased B. increased; decreased C. increased; did not change D. decreased: increased AACSB: Ana Blooms: Unders Difficulty: 2 Me Frank Learning objectne 16-02 Show how the CPsued to adnst dolar amounts to elimate the ecs ed aa Topic: Adjusting for Inflatio The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasolinend the real price of gasoline A. increased: also increased B. increased: decreased C. increased: did not change D decreased: increased AACSB An

Explanation / Answer

Question 1

It has been provided that the price of a gallon of gasoline at the pump has increased by 10 percent.

This increase in price indicates increase in nominal price.

So, the nominal price of gasoline has increased by 10 percent. Inflation rate was 5 percent.

When percentage increase in nominal price is greater than the inflation rate then real price increases and when the percentage increase in nominal price is less than the inflation rate then real prices decreases.

In the given case, percentage increase in nominal prices is greater than the inflation rate. So, in this case, real prices has increased.

Thus,

The nominal price of gasoline increased, and the real price of gasoline also increased.

Hence, the correct answer is the option (A).

Question 2

It has been provided that the price of a gallon of gasoline at the pump has increased by 10 percent.

This increase in price indicates increase in nominal price.

So, the nominal price of gasoline has increased by 10 percent. Inflation rate was 15 percent.

When percentage increase in nominal price is greater than the inflation rate then real price increases and when the percentage increase in nominal price is less than the inflation rate then real prices decreases.

In the given case, percentage increase in nominal prices is smaller than the inflation rate. So, in this case, real prices has decreased.

Thus,

The nominal price of gasoline increased, and the real price of gasoline decreased.

Hence, the correct answer is the option (B).

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