Question

On April 1, the price of gas at Bob’s Corner Station was $3.80 per gallon. On May 1, the price was $4.30 per gallon. On June 1, it was back down to $3.80 per gallon.. Suppose the Fed raises the target for the federal funds rate from 2% to 2.5%. This change of ____ percentage points means that the Fed raised its target by approximately ____.

Answer 1

The Fed raised its target by approximately 0.01 percentage points.

Step-by-step explanation:

The change in percentage points by the Fed can be calculated by subtracting the initial rate from the new rate. In this case, the initial rate is 2% and the new rate is 2.5%. So the change is 2.5% - 2% = 0.5%.

To calculate the approximate change by which the Fed raised its target, we can multiply the change in percentage points by the initial rate. In this case, the change is 0.5% and the initial rate is 2%. So the approximate change is 0.5% of 2%, which is 0.01.

Therefore, the Fed raised its target by approximately 0.01 percentage points.

Answer 2

Answer: 0.50%; 25%

Step-by-step explanation:

Given that,

On April 1,

Price of gas at Bob’s Corner Station = $3.80 per gallon

On May 1,

Price = $4.30 per gallon

On June 1,

Price = $3.80 per gallon

Federal funds rate rises from 2% to 2.5%

Change in Federal funds rate = 2.5% - 2%

= 0.50%

It raises its target by approximately =
`(100*0.50)/(2)`

= 25%