The normal distribution can be used to describe future inflation. You believe that 4% is the most likely rate. You are willing to bet that the inflation rate could as likely be above 4% as it could be below. You are also willing to bet that the inflation rate has a 68% chance of falling somewhere within 2% of the 4% rate. That is, you estimate there is approximately a two-thirds chance that the rate of inflation will be between 2% and 6%.
The normal distribution uses two parameters: Mean and Standard Deviation. Figure 89, Normal Distribution shows the values from the example entered as parameters of the normal distribution in Crystal Ball: a mean of 0.04 (4%) and a standard deviation of 0.02 (2%). The distribution shows the probability of the inflation rate being a particular percentage.
