During times of rising prices, which of the following best describes the economic phenomenon known as inflation?

• A. A decrease in the purchasing power of money due to falling prices
• B. A period when unemployment rates decrease as prices fall
• C. A general increase in the overall price level of goods and services in an economy
• D. A situation where the supply of goods exceeds demand, causing prices to fall

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of inflation. Inflation refers to the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money.
2. Step 2: Analyze each option in the context of inflation. Inflation is not about falling prices or unemployment rates directly, but about the overall increase in prices.
3. Step 3: Recognize that inflation means a general increase in the overall price level of goods and services in an economy, which reduces the value of money over time.
4. Step 4: Identify that options mentioning falling prices or supply exceeding demand causing prices to fall describe deflation or other market conditions, not inflation.
5. Step 5: Conclude that the best description of inflation is the general increase in the overall price level of goods and services in an economy.