Question

Rate of Inflation ( +4 1965 1980 1985 1990 Time -2 Figure-1 25. Figure-1: Refer to figure-1. Based on the figure A the price

The answer is D, please explain why. Thank you!

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Answer #1

Ans. D. Its very easy , the price level cannot actually fall because the Inflation rate have been positive throughout the time period , it haven't been negative. This means that Price level have only increased , sometimes it have increased at a lower rate and sometimes at a higher rate but it have never stopped increasing.  

Inflation refers to increase in prices. At some years inflation have increased , at some years inflation have increased. But the prices continue to rise. Lower inflation meant that prices increased at a slower rate while higher inflation meant that prices increased at higher rate . But , prices never decreased. Prices would have decreased when there would have been Deflation ie Negative Inflation.

Best of Luck !! !!

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