What is inflation?

• A. A rise in the general or average price level of all the goods and services produced in an economy.
• B. A decrease in the general price level of goods and services.
• C. A temporary fluctuation in prices.
• D. The increase in wages without price changes.

Answer: (A)

Inflation is the sustained rise in the general price level of goods and services in an economy over time. Instead of a price going up for just one item, inflation means that, on average, many prices increase, so the purchasing power of money falls—the same amount of money buys less than before. We measure this with price indices like the consumer price index or the GDP deflator, which track how prices change across a broad range of goods and services. It’s different from a one-time price spike, a temporary fluctuation, or deflation (a general fall in prices). It’s also not about wages rising while prices stay the same; inflation specifically describes changes in price levels, not wage changes.