What does it mean to say that the inflation rate last year was 5%?
A)All prices are 5% less 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

Inflation rate refers to the percentage increase in the general price level of goods and services in an economy over a period of time. Therefore, if the inflation rate last year was 5%, it means that, 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. Option A is incorrect because prices did not decrease, but rather increased. Option B is inaccurate because it refers to specific products, whereas inflation rate measures the overall price level of the economy. Option D is also incorrect because an increase in inflation means the opposite - the general purchasing power of the dollar has decreased.

What Does It Mean to Say That the Inflation Rate