Suppose the Value of the CPI Is 1

Multiple Choice

Suppose the value of the CPI is 1.100 in year one, 1.122 in year two, and 1.133 in year three. Assume also that the price of computers increases by 3 percent between year one and year two, and by another 3 percent between year two and year three. The price level is increasing, the inflation rate is ________, and the relative price of computers is ________.

A) decreasing; increasing
B) increasing; increasing
C) decreasing; decreasing
D) increasing; decreasing