Future Business Leaders of America (FBLA) Advertising Practice test

An increase in the general level of prices for products and services resulting in a decrease in purchasing power is called?

1. A) recession

2. B) stagflation

3. C) inflation

4. D) prosperity

The correct answer is: C) inflation

The term accurately describing an increase in the general level of prices for products and services, which in turn results in a decrease in purchasing power, is inflation. Inflation occurs when the overall price level rises, meaning consumers can buy less with the same amount of money over time. Factors leading to inflation include increased production costs, higher demand for products and services, or an expansion in the money supply. This economic phenomenon is significant as it erodes purchasing power, impacting consumers' ability to buy goods and services. In contrast, the other options describe different economic situations: recession refers to a period of economic decline characterized by falling GDP and increased unemployment, stagflation describes an economy experiencing stagnant growth, high unemployment, and high inflation simultaneously, and prosperity denotes a period of economic success characterized by high employment and rising incomes.