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Answer :
Final answer:
The real value of milk in 1998 in terms of 1970 dollars is calculated by using the 1998 nominal price of milk and the Consumer Price Indexes (CPIs) of those two years. The calculated real value is approximately $0.54 in 1970 dollars.
Explanation:
To calculate the real value of 1998 milk in terms of 1970 dollars we need to use the 1998 nominal price of milk and the CPI measures of both years. Remember, the CPI measures the average change over time in the prices paid by consumers for goods and services, which allows us to calculate the real value of something over different years considering the inflation.
Step 1: Calculate the ratio of the two CPIs: 38.8 / 163.0 = 0.238
Step 2: Multiply this ratio by the 1998 price: 0.238 * $2.25 = $0.535
Therefore, the real value of milk in 1998, when translated into 1970 dollars, was roughly $0.54.
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