The term "inflation" refers to
A)an increase in gross domestic product.
B)an increase in real interest rates.
C)an increase in nominal interest rates.
D)an increase in general price levels.

Question

Quizplus · Accepted Answer

Inflation refers to an increase in general price levels, meaning that the prices of goods and services in the economy are rising over time. This can lead to a decrease in the purchasing power of money and can have a negative impact on the economy. An increase in gross domestic product (A) would refer to economic growth, which can occur alongside or without inflation. An increase in real interest rates (B) would refer to an increase in the cost of borrowing, which can be used as a tool to combat inflation but is not the same thing as inflation itself. An increase in nominal interest rates (C) would refer to an increase in interest rates without accounting for inflation, and is not necessarily a sign of inflation itself. Inflation refers to an increase in the general price levels of goods and services in an economy over a period of time. It implies that the purchasing power of a currency is decreasing as prices are increasing. A is incorrect because an increase in GDP may or may not be associated with inflation. B is incorrect because an increase in real interest rates would imply a decrease in inflation, which is the opposite of the definition of inflation. C is incorrect because an increase in nominal interest rates could be a result of inflation, but it is not the same thing as inflation itself.

The Term "Inflation" Refers to