Question

When the Consumer Price Index falls from 110 to 100a. 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.

Answer 1

Option (b) is correct.

Step-by-step explanation:

Inflation rate refers to the rate at which the prices of goods and services are increased.

Inflation rate:

= Percentage Change in Consumer Price Index

= (100 - 110) ÷ 110

= - 10 ÷ 110

= - 0.0909, or - 9.09%

So, this is a Deflation of 9.09% (9.1%), and a deflation means that value of money has increased.