Inflation is defined as which of the following?

• A. A decrease in the value of money
• B. A drop in demand
• C. An increase in unemployment
• D. Increase in prices

Answer: (D)

Inflation means the general price level of goods and services in the economy is rising over time, which erodes the purchasing power of money. The best answer captures this broad rise in prices across many items, not just a single price change. A decrease in the value of money is a consequence of inflation, but the definition centers on the overall price level. A drop in demand and an increase in unemployment describe other economic conditions, not the general rise in prices. In practical terms, inflation shows up as the cost of living going up and money buying less than before.