Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing
A) deflation.
B) hyperinflation.
C) a drop in its price level.
D) disinflation.

Question

Quizplus · Accepted Answer

The nation is undergoing disinflation, which means that the rate of inflation is decreasing over time. While inflation is still occurring, the rate of increase has declined from 8% three years ago to 2% in the most recent year. Deflation would indicate a decrease in the overall price level, not just a decrease in the rate of inflation. Hyperinflation would refer to an extremely high and accelerating rate of inflation.

Suppose Three Years Ago a Nation's Inflation Rate Was 8