When the Consumer Price Index falls from 110 to 100
A)there is inflation of 9.1% and the value of money decreases.
B)there is deflation of 9.1% and the value of money increases.
C)there is deflation of 10% and the value of money increases.
D)there is inflation of 10% and the value of money decreases.

Question

Quizplus · Accepted Answer

When the Consumer Price Index falls, it means there is a decrease in the overall prices of goods and services. This is called deflation. In this case, the CPI has fallen from 110 to 100, which is a decrease of 9.1%. Therefore, the correct answer is B, there is deflation of 9.1% and the value of money increases. When there is deflation, the value of money increases because the same amount of money can now buy more goods and services.

When the Consumer Price Index Falls from 110 to 100