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AP Macroeconomics 2.4: Price Indices and Inflation

Calculate CPI and inflation, distinguish nominal from real variables, and explain how price-level changes affect real wages and living standards.

Syllabus
Effective Fall 2025
Course
AP Macroeconomics

Covered syllabus points

MEA-1.F—a. Define the consumer price index (CPI), inflation, deflation, disinflation, the inflation rate, and real variables. b. Explain…MEA-1.G—Define the shortcomings of the CPI as a true measure of inflation

2.4 Price Indices and Inflation question 1

[Maximum number: 2]

The table provided shows economic data for the country of Louland. The base year is year 1, and the GDP deflator in year 2 is 115.

Table for Question 2.4 Price Indices and Inflation question 1 — AP Macroeconomics

Question (a)

(a)

What was the numerical value of the inflation rate from year 1 to year 2 ?

[ 1 ]

Question (b)

(b)

If nominal wages increased by 10\% from year 1 to year 2, what happened to the real wages of workers in Louland during this time? Explain.

Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.

[ 1 ]

2.4 Price Indices and Inflation question 2

[Maximum number: 1]

． Which of the following statements explains why the consumer price index（CPI）may overestimate the true inflation rate？

A

（A） The CPI includes the prices of the newest products available to consumers．

B

（B） Improvements often result in higher prices on products．

C

（C） Consumers substitute away from more expensive products．

D

（D） The CPI includes prices of only domestically produced products．

E

（E） The CPI includes the prices of imported products．

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