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Unformatted text preview: service produced in the given year and thus $2000 is counted in GDP. I worked similar examples in class. See your in-class notes. Also see 104 of the textbook. Bonus Question Refer to Figure 6-1 . Suppose the graph above refers to inflation as measured by changes in the CPI (CPI inflation). Based on the figure, 1. the price level (the CPI) has fallen since 1965. 2. the price level (the CPI) in 1985 was lower than in 1980. 3. the price level (the CPI) fell from 1980 to 1990. 4. the price level (CPI) has not fallen since 1965. 5. the base year is 1965. Inflation is the percentage change in a price index, in this case the CPI. Therefore as long as inflation is positive, the CPI is increasing. Even though inflation is falling over some of the time periods charted above, inflation is positive for each year. Thus the CPI has risen over the entire period which is to say it has not fallen at any time....
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