How would you define inflation in macroeconomics?

• A. A temporary rise in prices
• B. A decrease in purchasing power only
• C. A sustained increase in the general price level of goods and services
• D. A sudden price spike limited to one sector

Answer: (C)

Inflation is a sustained rise in the general price level of goods and services across the economy over time. This means that, on average, prices are higher than before and money buys less than it did previously. The idea focuses on the overall level of prices, not just a single item or a temporary blip.

It’s not simply a temporary price increase, which could come and go without lasting impact on the overall price level. It’s also not a rise limited to one sector; if only one sector moves up while everything else stays the same, that isn’t inflation in the macro sense. The general price level rising across many goods and services, measured with indices like the consumer price index or the GDP deflator, captures the true concept of inflation.