Future Business Leaders of America (FBLA) Securities and Investments Practice Test

The Consumer Price Index (CPI) rising is an indicator of which economic condition?

1. Deflation

2. Recession

3. Inflation

4. Stagnation

The correct answer is: Inflation

The Consumer Price Index (CPI) rising is a significant indicator of inflation in an economy. When the CPI increases, it reflects a general rise in prices of a basket of goods and services over time. This means that the purchasing power of money decreases, and consumers need to spend more to buy the same items as before. Inflation is typically measured based on the changes in consumer prices, and a rising CPI signifies that, on average, consumers are experiencing higher costs for basic goods and services. It is essential for policymakers and economists to monitor the CPI as it helps to inform decisions related to monetary policy, interest rates, and economic growth strategies. In contrast, deflation would involve a decrease in the general price level, a recession indicates a significant decline in economic activity, and stagnation typically refers to a period of slow economic growth without significant inflation or deflation. These scenarios reflect conditions that are opposite to what a rising CPI indicates.