Question

Economic growth, inflation, and level of employment are all related. To determine inflation,

A) multiply the GDP by the change in price level.
B) divide the change in price level by the unemployment rate.
C) multiply the beginning price level by the unemployment rate.
D) divide the change in price level by the beginning price level.

Answer 1

ANSWER – D

There is an interconnection between Economic growth, inflation, and level of employment. In order to determine inflation, we divide the change in price level by the beginning price level. This is because a price index measures price level as a percent of a base year and inflation measures the change in the price index from the previous year.