Question

"Suppose that in some country the price of silver increased from $30 per ounce to $31 per ounce during a time when the overall price level increased by 5 percent. During this period, the real price of silver"
a. increased.b. decreased.c. stayed the same.d. might have increased, decreased or stayed the same

Answer 1

Answer: Option (B) is correct.

Explanation:

Given that,

Price of silver increased from $30 per ounce to $31 per ounce.

At that time, overall price level increased by 5%

Therefore,

Change in price of silver = $31 - $30

                                         = $1 per ounce

Percentage change in price of silver = $\frac{31 - 30}{30} \times 100$

                                                             = 3.33%

Overall price level increases by 5% but the price of silver increases by 3.33%, which is less than 5%.

Hence, real price of silver decreases.