What does it mean if the CPI rises from 100 to 105 the next year? a. The economy has experienced 5% inflation; average prices are 5% higher. b. The economy has experienced 5% deflation; average prices are 5% lower. c. The economy has experienced 5% inflation; 5% more goods and services are available. d. The economy has experienced 5% deflation; 5% fewer goods and services are available. Submit

a. The economy has experienced 5% inflation; average prices are 5% higher.

Explanation:

The CPI is a price index that measures the change in price (inflation) of a selected basket of goods and services that is most commonly purchased by consumers.

If the CPI has a value of 100 in year 1, and a value of 105 in year 2, it means that the index has risen 5% from year 2 to year 1. Because the CPI is a measure of inflation, we can also say that the economy has experienced a 5% inflation rate, which is the same as saying that average prices are 5% higher.

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