Question

Suppose the value of a price index is 500 in 2003 and 490 in 2004. What is the rate of inflation from 2003 to 2004?

(A) -2%
(B) -5%
(C) -8%
(D) -10%
(E) -12%

Answer 1

The rate of inflation from 2003 to 2004 is calculated by the percentage change in the price index, resulting in a -2% change, indicating deflation during that period.

Step-by-step explanation:

The rate of inflation from 2003 to 2004 can be determined by calculating the percentage change in the price index for the given years. According to the information provided, the price index was 500 in 2003 and 490 in 2004. To find the rate of inflation, we subtract the later index value from the earlier one, divide by the earlier index value, and then multiply by 100 to get a percentage:

Rate of Inflation = ((490 - 500) / 500) × 100 = (-10 / 500) × 100 = -2%

This calculation indicates that there was a decrease in the price level, often referred to as deflation, rather than inflation between 2003 and 2004. Therefore, the correct answer is (A) -2%.