What does the term inflation refer to?

Inflation refers to a rise in the general price level of goods and services in an economy over a period of time. This means that, as inflation occurs, consumers will find that the purchasing power of their money decreases; they will need more money to buy the same amount of goods or services than they did before.

This concept is crucial for understanding economic conditions as it affects everything from purchasing decisions to interest rates and wages. When inflation rises, it often indicates higher demand for goods and services or increased production costs, affecting the overall economy.

The other options do not define inflation accurately. A decrease in the general price level describes deflation, which is the opposite of inflation. A steady price level over time indicates price stability, which is not inflation, and the amount of money in circulation relates to monetary policy but does not define inflation itself.