Question

Inflation is defined as

a situation where all prices in the economy rise simultaneously.


the rate of growth in nominal GDP.


an increase in the overall level of prices.


the growth phase of the business cycle.

Answer 1

Inflation is a sustained rise in the general price level of goods and services across an entire economy, not just a change in relative prices between items. It is measured by the consumer price index and can lead to a decrease in standard of living if wages don't keep up. Controlling inflation is an important economic goal.

Step-by-step explanation:

Inflation is defined as a sustained increase in the general level of prices for goods and services in an economy. It is not simply a change in relative prices, where one item becomes more expensive while another becomes cheaper; inflation indicates a broad-based rise in price levels across most markets. The increase in prices during inflation means that each unit of currency buys fewer goods and services, which can erode purchasing power over time. Inflation is typically measured by indices such as the consumer price index (CPI), which tracks changes in the price level of a market basket of consumer goods and services.

High rates of inflation can lead to a decline in the standard of living for individuals if wages do not keep pace with rising prices. For this reason, controlling inflation to maintain a low and stable rate, typically around 1-2%, is a key economic objective for many governments.