The average price level is measured by
A)any real variable.
B)the rate of inflation.
C)the level of the money supply.
D)the CPI or the GDP deflator.

Question

Quizplus · Accepted Answer

The average price level is most commonly measured by either the Consumer Price Index (CPI) or the Gross Domestic Product (GDP) deflator. These measures capture changes in the prices of goods and services over time and are often used to track inflation. Option A is incorrect because real variables, by definition, take inflation into account and are not used to measure price levels. Option B is partially incorrect because inflation is one component of the measures used to calculate average price level but not the only one. Option C is also incorrect as the level of the money supply is a determinant of inflation but does not directly measure price level.

The Average Price Level Is Measured by