1.Define inflation. Assume that you live in a simple economy in which only three goods are produced and traded: cashews, pecans, and almonds. Suppose that on January 1, 2018, cashews sold for $12.50 per pound, pecans were $4.00 per pound, and almonds were $5.50 per pound. At the end of the year, you discover that the cashew crop was lower than expected and that cashew prices had increased to $17.00 per pound, but pecan prices stayed at $4.00 and almond prices had actually fallen to

$3.00. Can you say what happened to the overall “price level”?

How might you construct a measure of the “change in the price level”? What additional information might you need to construct your measure?