Which of the following best describes inflation?

Inflation is best described as a rise in the price levels of goods and services. This phenomenon occurs when there is an overall increase in the prices that consumers pay for products and services over a period of time, typically measured by indices such as the Consumer Price Index (CPI). Inflation indicates that the purchasing power of money is declining, meaning that each unit of currency buys fewer goods and services than it did previously. This can be caused by various factors including increased demand, rising costs of production, or expansionary monetary policies.

The other options do not accurately capture the essence of inflation. An increase in the unemployment rate, for instance, typically signals economic hardships rather than rising prices. A decrease in consumer spending can contribute to deflation, which is the opposite of inflation, as it often leads to lower demand and prices. Stagnation in economic growth might suggest a recession or economic slowdown, which again doesn’t directly relate to rising prices. Thus, the rise in the price levels of goods and services is the most defining characteristic of inflation.