Question

During a certain four-year period, the consumer price index (CPI) increased by only 5%, but during the next four-years period, it decreased by 15%. Which of these following conditions must have existed during the second four year period?

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

Answer 1

i put deflation and its right

Answer 2

The correct answer is C.

Deflation is the inverse of inflation. It is a process of progressive decline of the price level in a certain country over a period of time. The CPI is an index which measures the price level, as it is constituted by the market prices of a set of goods and services in a specific country. Therefore, in the period in which the CPI experienced a sustained decrease (of around 15%) it is by definition a period of deflation.

Inflation, on the contrary, is the proggresive and sustained increase in the price level in a certain country during a period of time.