If the price level is 100 in one year and rises to 102 the next year, then the inflation rate is
A) 2.0 percent.
B) 0.02 percent.
C) 102 percent.
D) 100 percent.
E) unable to be determined without knowing potential GDP.

Question

Quizplus · Accepted Answer

To calculate the inflation rate, we subtract the previous year's price level from the current year's price level and divide the result by the previous year's price level, then multiply by 100 to get the percentage.

In this case, the inflation rate would be ((102-100)/100) x 100 = 2.0 percent. Therefore, the correct answer is A.

If the Price Level Is 100 in One Year and Rises