Using the notation P_tto designate this period's price level and P_t_-₁to designate last period's price level, the formula for measuring the inflation rate from last period to this period is A) [(P_t_-₁- P_t) / P_t_-₁] × 100. B) [(P_t- P_t_-₁) / P_t_-₁] × 100. C) [(P_t_-₁- P_t) / P_t] × 100. D) [(P_t- P_t_-₁) / P_t] × 100.

Question

Quizplus · Accepted Answer

The formula for measuring the inflation rate from last period to this period is [(PS1U1B1t S1U1B0- PS1U1B1tS1U1B0S1U1B1- S1U1B0S1U1B11S1U1B0) / PS1U1B1tS1U1B0S1U1B1- S1U1B0S1U1B11S1U1B0] × 100. This formula calculates the percentage change in price level from last period to this period, relative to the price level in last period. Choice A is incorrect as it includes S1U1B0S1U1B0 in the denominator, which is not necessary. Choice C is incorrect as it only includes the price level in the current period in the denominator, which fails to account for the change in price level. Choice D is incorrect as it only calculates the difference in price level and does not express it as a percentage.

Using the Notation Pt to Designate This Period's Price Level

Using the Notation P_tto Designate This Period's Price Level