AP Macroeconomics : How to find inflation rate

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : Inflation Rate

Deflation, the increase in value of a currency over time, is much rarer than inflation. Although it can seem like a good thing, what is a problem caused by deflation?

Possible Answers:

Wages decrease faster than prices. 

It causes the value of debt to increase over time, harming borrowers. 

Consumers' purchasing power increases. 

Savings are worth more. 

Correct answer:

It causes the value of debt to increase over time, harming borrowers. 

Explanation:

When money becomes more valuable over time but debts do not change, the money owed on debts will be worth much more than the amount borrowed. This is damaging to borrowers as they must pay back loans that are effectively much more expensive than they agreed to. 

Example Question #2 : Inflation Rate

The consumer price index is the key measure that helps to calculate ________.

Possible Answers:

net imports

net exports

the inflation rate

the gross domestic product

the unemployment rate

Correct answer:

the inflation rate

Explanation:

The consumer price index is a government published tool calculated by collecting the prices of various retail items periodically. This snapshot view of current prices is one of the chief measures of inflation, as the inflation rate is simply the measure of the change in the consumer price index.

Example Question #3 : Inflation Rate

Which of the following is not one of the three main causes of inflation?

Possible Answers:

Demand pull inflation

Hyperinflation

Cost push inflation

Built-in inflation

Correct answer:

Hyperinflation

Explanation:

Hyper inflation has to do with the rate of inflation, and is not a cause of inflation. Therefore, hyperinflation is not one of the three main causes of inflation.

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