In macroeconomics, inflation is defined as?

• A. A fall in the overall price level
• B. A general decline in purchasing power only
• C. A sustained rise in the general price level of goods and services
• D. An immediate spike in prices across sectors

Answer: (C)

Inflation is a sustained rise in the general price level of goods and services. That means, over time, the average prices across a broad basket of items increase, and money’s purchasing power falls if incomes don’t keep up. The general price level is what economists measure with indexes like the consumer price index or the GDP deflator, focusing on the rate of increase from one period to the next. A mere one-time price jump in a few items or a momentary spike across sectors doesn’t constitute inflation, and a fall in the price level is deflation. A general decline in purchasing power describes a consequence of rising prices, not the definition itself.