Today's penny have next to no buying power. The purpose …show more content…
Cash transactions that end in 1,2,6, or 7 would be rounded down to the nearest 5 cents and transactions that end in 3,4,8, or 9 would be rounded up to the nearest 5 cents. For example if a transaction came out to $1.89, the prices would round up to $1.90 and alternatively if a the price came to a total of $1.56 then it would round to $1.55. Many worry that a "rounding tax" will make prices increase for costumers. Francois Velde, a senior economist at the Federal Reserve Bank of Chicago and Bank of France, says "In a competitive market , you might well see price decreases" (Sommer). Robert Whaples, a professor of economics, calculated over 200,000 transactions from 20 locations of a gas station and convenience store chain in Alabama, Georgia, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia to study this "rounding tax". What he found is that "the number of times consumers' bills would be rounded upward is almost exactly equal to the number of times that they would be rounded downward". He also compared a store in a wealthy neighborhood to poorer neighborhood and found that rounding has the same effect regardless of socioeconomic status (Barrett). Whaples also found that consumers even earn a net gain per 40 transactions. The rounding policy benefits the consumer