During a certain four-year period, the consumer price index (cpi) increased by only 5%, but during the next four-years period, it decreased by 15%. which of these following conditions must have existed during the second four year period?

a. depression
b. inflation
c. deflation
d. recession

The correct answer is C.

Deflation is the inverse of inflation. It is a process of progressive decline of the price level in a certain country over a period of time. The CPI is an index which measures the price level, as it is constituted by the market prices of a set of goods and services in a specific country. Therefore, in the period in which the CPI experienced a sustained decrease (of around 15%) it is by definition a period of deflation.

Inflation, on the contrary, is the proggresive and sustained increase in the price level in a certain country during a period of time.