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Suppose that the price of one gallon of milk was $0.25 in 1950, that the CPI...

Suppose that the price of one gallon of milk was $0.25 in 1950, that the CPI in 1950 was 25, and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?

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Answer #1

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Price of 1 gallon of milk in 2000 = (cpi in 2000 / cpi in 1950) * price of 1 gallon of milk in 1950

Price of 1 gallon of milk in 2000 = (200 / 25) * 0.25

Price of 1 gallon of milk in 2000 = 8 * 0.25

Price of 1 gallon of milk in 2000 = 2

so the price of 1 gallon of milk in 2000 is $2.

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