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Chapter 10: Problem 30

An example of deflation since the base year would be a CPI in the current year of _____ a) 90 b) 100 c) 110 d) 200

Short Answer

Expert verified
The example of deflation since the base year is when the CPI in the current year is 90 (option a).

Step by step solution

01

Identify the base year CPI

The base year CPI is set to 100. This value represents the price level in the base year and is used as a reference point for measuring inflation and deflation.
02

Evaluate option (a) - CPI of 90

A CPI of 90 indicates that the overall price level has decreased by 10% (100 - 90) since the base year. This is a clear example of deflation.
03

Evaluate option (b) - CPI of 100

A CPI of 100 equals the base year CPI, indicating that the overall price level has not changed since the base year. This situation does not represent deflation or inflation.
04

Evaluate option (c) - CPI of 110

A CPI of 110 shows that the overall price level has increased by 10% (110 - 100) since the base year. This situation represents inflation, not deflation.
05

Evaluate option (d) - CPI of 200

A CPI of 200 signifies that the overall price level has doubled, or increased by 100% (200 - 100), since the base year. This situation represents strong inflation, not deflation. After evaluating each option, we can conclude:
06

Conclusion

The example of deflation since the base year is when the CPI in the current year is 90 (option a).

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