Which of the following best describes deflation?

• A. A general decrease in the overall price level of goods and services in an economy
• B. A situation where the unemployment rate falls below the natural rate
• C. A sustained increase in the overall price level of goods and services in an economy
• D. A period of rapid economic growth accompanied by rising incomes

Answer: (A)

Verified step by step guidance

1. Understand the concept of deflation: Deflation refers to a general decrease in the overall price level of goods and services in an economy over a period of time.
2. Recall that inflation is the opposite of deflation, where inflation means a sustained increase in the overall price level.
3. Identify that deflation is not related to changes in unemployment rates or economic growth directly, but specifically to price levels.
4. Compare the given options to the definition of deflation to find the one that matches the concept of a general decrease in prices.
5. Select the option that states 'A general decrease in the overall price level of goods and services in an economy' as the best description of deflation.