The costs of purchasing a common "market basket" in each of several years are as follows:

\section*{Required}
1. Construct a price index using 1985 as the base year. Round each index number to \(1 / 10 \%\).
2. Using the index constructed in requirement 1 , what was the percent increase in prices from 1987 to 1991 ?
3. Using the index constructed in requirement 1, how many dollars in 1991 does it take to have the same purchasing power as \(\$ 1\) in 1984 ?
4. Using the index constructed in requirement 1 , if \(\$ 85,000\) were invested in land during 1986 and \(\$ 95,000\) were invested in land during 1989 , what would be reported as the total land investment on a constant purchasing power balance sheet prepared in 1990? What would your answer be if the investments were in U.S. long-term bonds rather than in land?

Transcribed Image Text:

Cost of Market Year Basket 1984 $ 85,000 1985 89,850 1986. 95,300 1987 94,750 1988 110,000 1989 115,400 1990. 112,760 1991 125,300