What is inflation?

Inflation refers to a sustained increase in the general price level of goods and services in an economy over a period of time. This means that as inflation occurs, the purchasing power of currency declines, leading consumers to spend more money for the same basket of goods and services. Understanding inflation is crucial for both individuals and policymakers, as it affects interest rates, wages, and overall economic health.

The selected answer accurately captures the essence of inflation by emphasizing its sustained nature and its impact on the general price level. It contrasts with other economic phenomena, such as deflation, which indicates a decline in prices, or temporary fluctuations in prices that do not signify a longer-term trend. By recognizing inflation as a continuous upward movement in prices, one can better grasp its implications for economic stability and the importance of managing it through monetary policy.