Using the notation P_t to designate this period's price level and P_t-1 to designate last period's price level, the formula for measuring the inflation rate from last period to this period is A) [(P_t - P_{t - 1}) / P_t] × 100. B) [(P_{t -1} - P_t) / P_{t - 1}] × 100. C) [(P_t - P_{t - 1}) / P_{t - 1}] × 100. D) [(P_{t -1} - P_t) / P_t] × 100.

Question

Quizplus · Accepted Answer

The correct formula for calculating the inflation rate is to subtract last period's price level from this period's price level, then divide by last period's price level, and finally multiply by 100 to convert it into a percentage. This is exactly what option C represents.

Using the Notation Pt to Designate This Period's Price Level

Using the Notation P_t to Designate This Period's Price Level