Suppose the Value of the CPI Is 1

question 40

Multiple Choice

Suppose the value of the CPI is 1.100 in year one, 1.210 in year two, and 1.331 in year three. Assume also that the price of computers increases by 3 percent between year one and year two, and by another 3 percent between year two and year three. The price level is increasing, the inflation rate is ________, and the relative price of computers is ________.

• A)increasing; increasing
• B)constant; increasing
• C)constant; decreasing
• D)increasing; decreasing

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Definitions:

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, a measure of inflation.

Consumers Feel Wealthier

A phenomenon where consumers perceive themselves to have more disposable income or wealth, leading to increased spending.

Aggregate Demand Curve

A graphical representation showing the relationship between the total quantity of goods and services that households, businesses, and the government are willing to purchase at each price level.

Price Level

A measure of the average prices of goods and services in an economy at a given time, often used to monitor inflation or deflation.