Based on the provided data, what economic phenomenon is this country experiencing? Explain your reasoning by referencing the change in the price level.

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Deflation is defined as a negative change in the economy's general price level. This indicates that, on average, the cost of a representative basket of goods and services is decreasing over a period of time.

Deflation: A Negative Change in the Price Level

Imagine an economy where the average cost of a standard collection of consumer goods and services has been steadily falling for several months. Which of the following is the most likely consequence of this trend?

Analyzing Price Level Data

An economy is experiencing deflation if the cost of a representative basket of goods and services changes from $2,000 in one year to $1,950 in the next year.

An economist observes the following costs for a standard basket of consumer goods: Year 1: $500, Year 2: $490, Year 3: $485. Based on this data, what economic phenomenon is occurring between Year 1 and Year 3? Explain your reasoning by referencing the change in the cost of the basket of goods.

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