If the Consumer Price Index (CPI) falls from 125 to 121 in a particular year, the economy has experienced:
inflation of 3.2%.
inflation of 3.3%.
deflation of 3.2%.
deflation of 3.3%.
Deflation of 3.2%.
Deflation occurs when there is a decrease in the general price level of goods and services. In this case, the CPI falling from 125 to 121 indicates a decrease in prices, resulting in deflation. The calculation to determine the percentage change in the CPI is (121-125)/125 * 100 = -3.2%, indicating a 3.2% decrease in the CPI and therefore deflation.