Of the following sequences of price levels, which correctly represents a 5 percent inflation rate?
A) 100, 105, 105, 105
B) 100, 105, 110.25, 115.76
C) 100, 105, 110, 115
D) 100, 100, 100, 100

Question

Quizplus · Accepted Answer

To calculate the inflation rate, we need to compare the price levels over time. The formula for inflation rate is:
(Inflation rate = (Price level in current period - Price level in previous period) / Price level in previous period) x 100

Using option B:
- The inflation rate between year 1 and year 2 is (105-100)/100 x 100 = 5%
- The inflation rate between year 2 and year 3 is (110.25-105)/105 x 100 = 5%
- The inflation rate between year 3 and year 4 is (115.76-110.25)/110.25 x 100 ≈ 5%

Therefore, option B represents a correct 5 percent inflation rate.

Of the Following Sequences of Price Levels, Which Correctly Represents