Inflation is defined as which of the following?

Inflation is defined as which of the following?

• A. General rise in prices over time
• B. General fall in prices over time
• C. No change in price levels
• D. Prices fluctuate randomly

Answer: (A)

Inflation means a general rise in the price level across the economy over time. It reflects that, on average, goods and services cost more than before, reducing purchasing power unless incomes rise. We usually measure it with a price index like the CPI and express the rate as the percentage change from the previous period. The other options describe outcomes that aren’t inflation: a general fall in prices is deflation, no change in price levels is price stability, and prices fluctuating randomly do not capture a persistent upward trend in the overall price level.

Inflation means a general rise in the price level across the economy over time. It reflects that, on average, goods and services cost more than before, reducing purchasing power unless incomes rise. We usually measure it with a price index like the CPI and express the rate as the percentage change from the previous period. The other options describe outcomes that aren’t inflation: a general fall in prices is deflation, no change in price levels is price stability, and prices fluctuating randomly do not capture a persistent upward trend in the overall price level.