Inflation can be defined as
A) an increase in the purchasing power of money.
B) a decrease in the purchasing power of money.
C) no change in the purchasing power of money.
D) an increase in real income.

Question

Quizplus · Accepted Answer

Inflation is a general increase in the price level of goods and services over time, which causes a decrease in the purchasing power of money. This means that the same amount of money can buy fewer goods and services than before, leading to a decrease in the value of money. Therefore, option B is the correct definition of inflation. Option A is incorrect because an increase in the purchasing power of money is referred to as deflation. Option C is incorrect because if there is no change in the price level, there is no inflation. Option D is incorrect because while inflation can lead to an increase in nominal income, it may not necessarily lead to an increase in real income due to the decrease in purchasing power.

Inflation Can Be Defined as