At the beginning of a year, decision makers expect the general level of prices to increase at a 3 percent annual rate. The CPI increases from 150 to 154.5 during the year; this is an example of
A) an inflation rate that is equal to 4.5 percent.
B) an unanticipated increase in the general level of prices.
C) an increase in the general level of prices that was accurately anticipated.
D) an inflation rate that is less than what people anticipated.

Question

Quizplus · Accepted Answer

The CPI increased from 150 to 154.5 during the year, which is an increase of 4.5 percent. This is equal to the anticipated inflation rate of 3 percent, so this is an example of an increase in the general level of prices that was accurately anticipated.

At the Beginning of a Year, Decision Makers Expect the General