Question

Suppose the CPI was 140 last year and is 168 this year. a. What is this year’s rate of inflation? Instructions: Enter your response as a percentage rounded to one decimal place. Use a minus sign if necessary. b. In contrast, suppose that the CPI was 140 last year and is 134 this year. What is this year’s rate of inflation? c. What term do economists use to describe this second outcome?

Answer 1

Answer:

a) Inflation =     = 20%

b) Inflation = -4.3

c) Deflation

Explanation:

The rate of change in the consumer price index is used to measure the movement in price level . An increase in the price level is termed inflation and a decrease is termed deflation.

a)

Inflation =( Current CPA/previous CPI) -1  ×  100

           = (168/140) - 1 × 100

            = 20%

b)

Inflation = (134-140)/140 × 1   = -4.3%

c) The second outcome is called deflation