If the Price Level Increases from 200 in Year 1

question 24

Multiple Choice

If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from year 1 to year 2 is ________.

• A) 20 percent
• B) 10 percent
• C) 11 percent
• D) 120 percent

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Definitions:

Note Payable

A written promise to pay a certain amount of money, usually with interest, at a future date or over a period of time.

Market Interest Rate

The rate at which interest is paid by borrowers for borrowing funds in the market.

Compounded Annually

A method of calculating interest in which the interest earned each year is added to the principal, so that the balance doesn't merely grow, it grows at an increasing rate.

Present Value

The present value of a future amount of money or sequence of cash flows, based on a certain rate of return.