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If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced a. 10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. b. 11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. c. 10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. d. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

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Answer:

d. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

Explanation:

Inflation Rate between Current Year and Previous Year = ((Price Index in Current Year - Price Index in Previous Year) / Price Index in Previous Year) * 100

Inflation Rate between Year 2 and Year 1 = ((Price Index in Year 2 - Price Index in Year 1) / Price Index in Year 1) * 100 = ((100 - 90) / 90) * 100 = +11.1111%

Inflation Rate between Year 3 and Year 2 = ((Price Index in Year 3 - Price Index in Year 2) / Price Index in Year 2) * 100 = ((90 - 100) / 100) * 100 = -5%

*Negative value = Deflation

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