If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced
A)10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.
B)10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
C)11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.
D)11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

Question

Quizplus · Accepted Answer

The price index rising from 90 to 100 represents an increase of 11.1% (calculated as (100 - 90) / 90). The decrease from 100 to 95 represents a 5% reduction, which is deflation, not inflation (calculated as (100 - 95) / 100).

If the Price Index Was 90 in Year 1, 100