Future Business Leaders of America (FBLA) Personal Finance Practice Test

What economic term refers to the rise in the level of prices for goods and services?

1. Recession

2. Deflation

3. Inflation

4. Stagnation

The correct answer is: Inflation

The rise in the level of prices for goods and services is referred to as inflation. When inflation occurs, the purchasing power of money decreases, meaning consumers can buy fewer goods and services with the same amount of money than they could before prices increased. Inflation can be caused by a variety of factors, including increased production costs, higher demand for products, and more money circulating in the economy. It is a critical concept in economics as it affects everything from personal savings and investments to the overall health of an economy. In contrast to inflation, deflation is a decrease in the general price levels of goods and services, which can lead to decreased consumer spending and prolonged economic downturns. A recession refers to a significant decline in economic activity across the economy, often measured by a drop in GDP, while stagnation describes an extended period of slow economic growth or lack of growth, usually without rising inflation. Each of these terms addresses different economic conditions, making inflation a distinct and well-defined phenomenon.