The following graph shows the measurements of price level for three periods. What is the best estimate for the average growth rate of the price level between period 1 and 3? (Hint: Compute the percentage change from period 1 to 2 and the percentage change from period 2 to period 3)

Question

BlackTom AI · Accepted Answer

The question asks for the best estimate of the average growth rate in the price level from period 1 to period 3, using the two intermediate changes.
First, identify the price levels from the graph: P1 is 1.00, P2 is about 1.04 (a 4% rise from P1), and P3 is about 1.13 (an increase from P2 to P3 of roughly 8.65%).
Option A: 7.3% would imply average growth around that level, but averaging the two period changes (roughly 4% and 8.65%) gives about 6.3%, not 7.3%, so this is inconsistent with the computed average.
Option B: 5.3% corresponds to an average that is lower than the actual mean of the two observed changes (4% and ~8.65%), making it incorrect.
Option C: 4.3% suggests a much smaller average than the first change and also far from the computed mean; it underweights the second period’s large rise.
Option D: 6.3% matches the straightforward average of the two percentage changes: (P2/P1 - 1) ≈ 0.04 and (P3/P2 - 1) ≈ 0.0865, and (0.04 + 0.0865)/2 ≈ 0.0635 ≈ 6.3%.
Thus, the reasoning shows why the 6.3% choice aligns with averaging the two period-to-period growth rates derived from the graph.

ECON 2002.01 AU2025 (21333) Midterm Exam 2- Requires Respondus LockDown Browser

The following graph shows the measurements of price level for three periods. What is the best estimate for the average growth rate of the price level between period 1 and 3? (Hint: Compute the percentage change from period 1 to 2 and the percentage change from period 2 to period 3)

View Explanation

Log in for full answers

Similar Questions

If the Consumer Price Index (CPI) falls from 100 to 98 between two consecutive years, this implies that prices fell by 2% between those two years.

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

Compute inflation 𝜋 2 (in percent). Round your answer to the nearest tenth of a percent.

Suppose the consumer price index 𝑃 𝑡 takes the following end-of-year values: 𝑃 2022 = 115 and 𝑃 2023 = 120.9 . Based on this information you know that the inflation rate in 2023 is ___________ percent. Round your answer to the nearest tenth of a percent.

The inflation rate between 2014 and 2015 was ______ percent. Round your answer to the nearest tenth of a percent.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler