What term describes the increase in prices over time, which reduces purchasing power?

• A. Deflation
• B. Inflation
• C. Stagnation
• D. Depreciation

Answer: (B)

The term that describes the increase in prices over time, which reduces purchasing power, is inflation. When inflation occurs, the overall level of prices for goods and services rises, meaning that each unit of currency buys fewer goods and services than before. This can happen for various reasons, including increased production costs, higher demand for products, or a growth in the money supply. As a result, consumers must spend more money to make the same purchases, leading to a decrease in purchasing power. Understanding inflation is important not only in economics but also in sectors like finance and real estate, as it influences savings, investments, and the cost of living.