Question

​If the price level increases by 2 percent each year, the inflation rate is increasing. a. True b. False

Answer 1

Answer: False

Step-by-step explanation:

Inflation refers to the general rise in prices of goods and services in an economy. It erodes the value of currency because with inflation, one is able to buy less goods.

If the inflation rate increases by 2% each year then the inflation rate is not increasing. The inflation rate is remaining constant at 2%. The inflation rate would be increasing if the prices increased by 2% then by 4% then by 6%. That way the inflation rate would be increasing by 2% every year.

If the rate at which prices are increasing is constant then, the inflation rate is the same.