Question

During a certain five-year period, the consumer price index (CPI) increased by 40%. But during the next five-year period, it increased by only 20%. Which of these conditions must have existed during the second five-year period?

A. Recession
B. Inflation
C. Deflation
D. Depression

Answer 1

Option B : Inflation is correct.

Explanation:

During a certain five year period the CPI increased by 40% but next five years it increased by only 20%.

First we need to know what is these terms :

A. Recession: It is generally identified by fall in GDP (Gross Domestic Products) in two successful quarters.

B. Inflation: Inflation is basically rise in prices, where CPI increases.

C. Deflation : Reduction of general level of prices in economy.

D. Depression : Depression is defined as severe and prolonged recession.

So this situation of second five year period is called inflation where CPI increases by 20% less in comparison of earlier.