Analyzing Price Trends in the Graph

Steps:

• Identify lines for goods, services, and general price level across years 2008–2012.
• Compare general price level: it decreases from 2008 to 2010, indicating deflation.
• Check services prices: higher than goods overall, but compare 2010 vs. 2012 values.
• Evaluate goods prices: note any changes between 2010 and 2012.

Why C is correct:

• A fall in the general price level matches the definition of deflation, shown by the downward trend in the overall index line from 2008 to 2010.

Why the others are wrong:

• A: Graph shows services prices above goods, but not necessarily higher on average throughout if weighted equally.
• B: Services prices rose from 2010 to 2012, not the reverse.
• D: Goods prices fell or stayed flat from 2010 to 2012, not increased.

Final answer: C