Multiple Choice
Typically, high inflation is a sign of which of the following macroeconomic conditions?
11. Unemployment and Inflation
Inflation and Consumer Price Index (CPI)
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In macroeconomics, the annual inflation rate measures the percentage growth rate of which of the following?
A
The unemployment rate, the share of the labor force without jobs
B
The Consumer Price Index (CPI), a measure of the average price level of a basket of consumer goods and services
C
Real GDP, adjusted for changes in the price level
D
Nominal GDP, the value of final goods and services measured at current prices
Verified step by step guidance1
Step 1: Understand what the annual inflation rate measures. Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Step 2: Recognize that the inflation rate is typically calculated using a price index that tracks the average price level over time. The most common index used is the Consumer Price Index (CPI), which measures the average price of a fixed basket of consumer goods and services.
Step 3: Differentiate between the options: the unemployment rate measures labor market conditions, Real GDP is adjusted for inflation and reflects output, and Nominal GDP is measured at current prices without adjusting for inflation.
Step 4: Conclude that the annual inflation rate specifically measures the percentage change in the Consumer Price Index (CPI) over a year, reflecting how much prices have increased on average for consumers.
Step 5: Therefore, the correct understanding is that the annual inflation rate measures the percentage growth rate of the Consumer Price Index (CPI), not unemployment rate, Real GDP, or Nominal GDP.
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Inflation and Consumer Price Index (CPI) practice set
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