Suppose that the Consumer Price Index rose by 3% from 2003 to 2004. Suppose that
ID: 2612776 • Letter: S
Question
Suppose that the Consumer Price Index rose by 3% from 2003 to 2004. Suppose that the price of a pizza increased by 5% during that time. Which of the following is true?
The nominal price of pizza increased.
The real price of pizza increased.
The real price of pizza did not change.
Both a and b are correct.
Both a and c are correct.
Which of the following must be true if the price of college tuition has risen faster than the Consumer Price Index in the last 20 years?
The real price of college tuition has risen.
The nominal price of college tuition has risen.
The real price of college tuition has not changed.
Both a and b are correct.
Both b and c are correct.
The nominal price of pizza increased.
The real price of pizza increased.
The real price of pizza did not change.
Both a and b are correct.
Both a and c are correct.
Which of the following must be true if the price of college tuition has risen faster than the Consumer Price Index in the last 20 years?
The real price of college tuition has risen.
The nominal price of college tuition has risen.
The real price of college tuition has not changed.
Both a and b are correct.
Both b and c are correct.
Explanation / Answer
Answer:
D - Both a and b are correct
Nominal Price = Real Price*(CPI Index current year/CPI index base year)
explanation: As the overall price of pizza has incresed, so it can be concluded that the nominal price has incresed.
Also as nominal price has increses beyond the inflation adjsutment factor, so it can also be concluded that the real prices has also incresed.
2. D - Both a and b are correct
Again the overall price level of tution fees and also as the increse in price is more than the CPI index, it can be concluded that both the real and nominal price levels has incresed.
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