Define inflation. Assume that you live in a simple economy in which only three goods are produced

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Define inflation. Assume that you live in a simple economy in which only three goods are produced and traded: cashews, pecans, and almonds. Suppose that on January 1, 2018, cashews sold for $12.50 per pound, pecans were $4.00 per pound, and almonds were $5.50 per pound. At the end of the year, you discover that the cashew crop was lower than expected and that cashew prices had increased to $17.00 per pound, but pecan prices stayed at $4.00 and almond prices had actually fallen to $3.00. Can you say what happened to the overall “price level”? How might you construct a measure of the “change in the price level”? What additional information might you need to construct your measure?

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Principles Of Macroeconomics

ISBN: 9781292303826

13th Global Edition

Authors: Karl E. Case,Ray C. Fair , Sharon E. Oster

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