Suppose the nominal price of gasoline was $0.90 per gallon in 1987. To convert this value to the real price of 1987 gasoline in 2017 dollars, we should:

Question

Quizplus · Accepted Answer

To convert the nominal price of gasoline in 1987 to the real price of 1987 gasoline in 2017 dollars, we need to adjust for inflation. The best way to do this is to find the ratio of the 2017 CPI to the 1987 CPI, and multiply the nominal price by this ratio. This will give us the real price in 2017 dollars. Therefore, we should multiply the $0.90 nominal price of gasoline by the 2017 CPI (which is higher than the 1987 CPI) and divide by the 1987 CPI. This will tell us how much the nominal price of gasoline in 1987 would need to increase to be equivalent to the real price of gasoline in 2017 dollars.

Suppose the Nominal Price of Gasoline Was $0