The Price Index Is 320 in One Year and 360

question 133

Multiple Choice

The price index is 320 in one year and 360 in the next year.What was the inflation rate?

• A)6.7 percent
• B)8 percent
• C)12.5 percent
• D)40 percent

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Definitions:

Identical Products

Goods that are exactly the same in every feature, quality, and specification, allowing them to be interchangeable.

Absolute Purchasing Power Parity

A theory that suggests that in the absence of trade barriers and transportation costs, identical goods will have the same price in different countries when prices are expressed in a common currency.

Covered Interest Arbitrage

A financial strategy to profit from the difference in interest rates between two countries while hedging against exchange rate risks.

Spot Rate

The current market price at which a particular asset, such as a currency, commodity, or security, can be bought or sold for immediate delivery.