Suppose that the consumer price index rose by 3% from 2013 to 2014.Suppose that the price of a pizza increased by 5% during that time.Which of the following is TRUE?

Question

Quizplus · Accepted Answer

Nominal price refers to the price of a good or service in terms of the current dollar amount. Real price refers to the price adjusted for inflation. In this case, the consumer price index rose by 3%, indicating that inflation occurred. Therefore, the real price of pizza must be adjusted for inflation by subtracting the inflation rate of 3% from the pizza price increase of 5%, resulting in a real price increase of 2%. Therefore, option B is correct, and options A, C, and D are incorrect.

Suppose That the Consumer Price Index Rose by 3% from 2013