Fairly straight forward, Can I assume that Price Level and Inflation are interchangeable when looking at these graphs together?

Generally, are they equivalent in Macroeconomics?


Related but not equivalent. I assume you mean inflation rate when you say inflation,

Let $p_t =$ price level at time t

=> inflation rate at time t $ = \frac{p_{t}-p_{t-1}}{p_{t-1}} = \frac{p_{t}}{p_{t-1}} -1 $


Snoram is correct. Price level is a just that, the relative level of prices. Inflation/deflation is the act of moving up/down price levels. The inflation rate is the difference in price levels from one time period to another.

I.E. Year 1: Price level = 100 | Year 2: Price level =105.

There was inflation in the economy (because price level increased). The inflation rate was 5%.

Another example:

I.E. Year 1: Price level = 177

In this example we do NOT know if the economy is experiencing inflation or deflation becuase we only have a single point in time and thus cannot determine the rate or direction of change.


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