Suppose the consumer price index was 100 in the year 2000 and 200 in the year 2010.If the nominal price of apples has increased from 100 to 150 over this period,the real price of apples has:
A)fallen by 25 percent.
B)fallen by 50 percent.
C)risen by 50 percent.
D)risen by 25 percent.

Question

Quizplus · Accepted Answer

The real price adjustment accounts for inflation using the consumer price index (CPI). In 2000, the CPI was 100, and in 2010, it was 200, indicating that prices doubled. The nominal price of apples increased from 100 to 150, but in real terms, this is a decrease because the overall price level doubled. To find the real price change, adjust the 2000 price to 2010 dollars: 100 in 2000 is equivalent to 200 in 2010 dollars. The real price in 2010 is 150, compared to the adjusted 2000 price of 200, which is a 25% decrease.

Suppose the Consumer Price Index Was 100 in the Year