Figure 35-1

-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2020, and those two points correspond to points B and C, respectively, on the left-hand graph. Also, suppose we know that the price index equaled 120 in 2019. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by

Question

Figure 35-1   ​
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-Refer to Figure 35-1. Suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2020, and those two points correspond to points B and C, respectively, on the left-hand graph. Also, suppose we know that the price index equaled 120 in 2019. Then the numbers 115 and 130 on the vertical axis of the left-hand graph would have to be replaced by

Quizplus · Accepted Answer

The price index in 2019 is 120. If the numbers on the vertical axis are 115 and 130, they need to be adjusted to reflect the change from 2019. To find the new values, multiply the original numbers by the ratio of the new index to the old index (120/100). Thus, 115 becomes 138 (115 * 1.2) and 130 becomes 156 (130 * 1.2).

Figure 35-1 ​

Figure 35-1