If the consumer price index is 102 in Year One, 108 in Year Two, 106 in Year Three, 105 in Year Four, and 104 in Year Five, which statement correctly describes what the economy is experiencing? (1 point)
• There is inflation from Year One to Year Two, then deflation after that
• There is deflation from Year One to Year Two, then inflation after that.
O There is inflation from Year One to Year Two, then inflation after that.
• There is deflation from Year One to Year Two, then deflation after that.
There is inflation from Year One to Year Two, then inflation after that.
The correct statement is: There is inflation from Year One to Year Two, then deflation after that.
To determine the correct statement, we need to analyze the changes in the consumer price index (CPI) over the years.
The consumer price index measures the average change in prices of a basket of goods and services commonly purchased by households. When the CPI increases over time, it indicates inflation, and when it decreases, it indicates deflation.
Let's examine the CPI changes in each year:
- Year One to Year Two: CPI increases from 102 to 108, indicating inflation.
- Year Two to Year Three: CPI decreases from 108 to 106, indicating deflation.
- Year Three to Year Four: CPI decreases from 106 to 105, indicating deflation.
- Year Four to Year Five: CPI decreases from 105 to 104, indicating deflation.
Based on the CPI changes, the correct answer is:
• There is inflation from Year One to Year Two, then deflation after that.