The price index in the first year is 100, in the second year is 90, and in the third year is 80. What is the deflation rate between the first and second year, and between the second and third year?

Question

Quizplus · Accepted Answer

To calculate the deflation rate between two years, we use the formula:

Deflation rate = ((Price index in year n-1 - Price index in year n)/Price index in year n-1) x 100

Using this formula, we get:
Deflation rate between first and second year = ((100-90)/100) x 100 = 10%
Deflation rate between second and third year = ((90-80)/90) x 100 = 11.1%
Rounded to the nearest integer, the deflation rates are 10% and 11%, which corresponds to option C.

The Price Index in the First Year Is 100, in the Second