The annual rate of inﬂation can be found by subtracting
A) the real income from the nominal income.
B) last year's price index from this year's price index.
C) this year's price index from last year's price index and dividing the difference by this year's price index.
D) last year's price index from this year's price index and dividing the difference by last year's price index.

Question

Quizplus · Accepted Answer

The most common way to calculate the annual rate of inflation is to subtract last year's price index from this year's price index and divide the difference by last year's price index. This gives the percentage increase in prices from last year to this year, which represents the rate of inflation. Choice D is the only option that matches this method.

The Annual Rate of Inﬂation Can Be Found by Subtracting