In physics, displacement is defined as the weight of a liquid that is forced out of position by an object that is floating on or in it.
How this most often relates to the automotive industry is a measurement of liquids volume engine cylinders pushed out by the engine's pistons. Simply said, if you filled with liquid the portion of all engine cylinders in which a piston travels, and then drain to measure that liquid, you get the total displacement of the engine. This measurement use to be given in Cubic Inch Displacement (CID) in the US or Cubic Centimeters (CC) elsewhere. It is now more typically given as Liters Displaced. A 5.0L (5.0 Liters) engine could also be rated at 5000 CC or 305 CI.
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