What does it mean to say that the inflation rate last year was 5%?
A)All prices are 5% more at the end of the year than they were at the beginning of the year.
B)The price of specific products increased 5% between the beginning and the end of the year.
C)On average,a typical basket of goods costs 5% more at the end of the year than it did at the beginning of the year.
D)The general purchasing power of the dollar has increased 5% between the beginning of the year and the end of the year.

Question

Quizplus · Accepted Answer

The inflation rate measures the average increase in prices of a basket of goods and services over a period of time, usually a year. Option C accurately reflects this definition, as it states that the average cost of a typical basket of goods increased by 5% between the beginning and end of the year. Options A, B, and D are incorrect as they either refer to all prices or specific products, which may not be representative of the overall inflation rate. Option D is also incorrect as a general increase in purchasing power would indicate deflation, rather than inflation.

What Does It Mean to Say That the Inflation Rate