What is inflation?

What is inflation?

• A. A decrease in general price levels
• B. The rate of rising general price levels
• C. The total amount of available currency
• D. The increase in consumer spending

Answer: (B)

Inflation refers specifically to the rate at which the general price levels of goods and services in an economy rise over a period of time. It indicates how much more expensive a set of goods and services has become, which impacts purchasing power. When inflation occurs, each unit of currency buys fewer goods and services, eroding the value of money. This makes option B the most accurate definition of inflation since it directly addresses the concept of rising price levels. The other options describe related but distinct concepts. A decrease in general price levels refers to deflation, which is the opposite of inflation. The total amount of available currency is related to the money supply but does not specifically denote inflation itself. Lastly, while an increase in consumer spending can contribute to demand-pull inflation, it does not define inflation. Thus, recognizing that inflation specifically pertains to the rate of rising prices helps clarify its unique economic role.

Inflation refers specifically to the rate at which the general price levels of goods and services in an economy rise over a period of time. It indicates how much more expensive a set of goods and services has become, which impacts purchasing power. When inflation occurs, each unit of currency buys fewer goods and services, eroding the value of money. This makes option B the most accurate definition of inflation since it directly addresses the concept of rising price levels.

The other options describe related but distinct concepts. A decrease in general price levels refers to deflation, which is the opposite of inflation. The total amount of available currency is related to the money supply but does not specifically denote inflation itself. Lastly, while an increase in consumer spending can contribute to demand-pull inflation, it does not define inflation. Thus, recognizing that inflation specifically pertains to the rate of rising prices helps clarify its unique economic role.