Multiple Choice
Typically, low 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 inflation rate is defined as the:
A
absolute change in the price level (often measured by CPI) over a given period
B
percentage change in real GDP over a given period
C
percentage change in the unemployment rate over a given period
D
percentage change in the price level (often measured by CPI) over a given period
Verified step by step guidance1
Understand the definition of the inflation rate in macroeconomics: it measures how much the general price level of goods and services changes over time.
Recognize that the price level is often measured by the Consumer Price Index (CPI), which tracks the average prices paid by consumers for a basket of goods and services.
Recall that the inflation rate is calculated as the percentage change in the price level between two periods, not the absolute change or changes in other economic indicators like real GDP or unemployment.
Express the inflation rate formula as: \(\text{Inflation Rate} = \frac{\text{CPI}_{t} - \text{CPI}_{t-1}}{\text{CPI}_{t-1}} \times 100\%\), where \(\text{CPI}_{t}\) is the price level at the current period and \(\text{CPI}_{t-1}\) is the price level at the previous period.
Conclude that the correct definition of inflation rate is the percentage change in the price level (often measured by CPI) over a given period.
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Inflation and Consumer Price Index (CPI) practice set
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