What is inflation?

Inflation refers to a general and progressive increase in prices of goods and services in an economy over a period of time. This phenomenon indicates that, with inflation, the purchasing power of money decreases; that is, a given amount of money buys fewer goods and services than it did previously. Understanding this concept is crucial because it impacts consumers, businesses, and the overall economy, affecting savings, investment decisions, and monetary policy.

The other options do not accurately describe inflation. A decrease in prices over time refers to deflation, not inflation. A stable economic condition implies that prices do not fluctuate significantly, which would contradict the concept of inflation. Lastly, a temporary increase in unemployment does not directly relate to the concept of inflation, as inflation focuses specifically on price changes rather than employment levels.