Question

If the price level last year was 180 and this year it is 176, then
a.

there was inflation of 4 percent.
b.

there was deflation of 4 percent.
c.

there was deflation of 2.2 percent.
d.

there was inflation of 2.3 percent.

Answer 1

To calculate the inflation or deflation rate, you can use the following formula:

\[
\text{Inflation/Deflation Rate} = \frac{\text{Price Level This Year} - \text{Price Level Last Year}}{\text{Price Level Last Year}} \times 100
\]

In this case, the price level last year was 180 and this year it is 176. Plugging in the values:

\[
\text{Rate} = \frac{176 - 180}{180} \times 100 = \frac{-4}{180} \times 100 \approx -2.22\%
\]

Since the result is negative, this indicates deflation.

Thus, the answer is:

**c. there was deflation of 2.2 percent.**