What is the economic term used for a sustained increase in the price of goods and services?

The correct answer is inflation, which refers to a sustained increase in the general price level of goods and services in an economy over a period of time. When inflation occurs, each unit of currency buys fewer goods and services, effectively eroding purchasing power. This phenomenon is typically measured by indices such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).

Inflation can result from various factors, including an increase in demand for goods and services (demand-pull inflation), rises in production costs (cost-push inflation), or excessive money supply growth. It is an important concept in economics because it affects economic decisions regarding spending, saving, investing, and policy-making.

The other terms represent different economic conditions. A depression refers to a prolonged period of economic downturn characterized by significantly reduced economic activity, high unemployment, and declining prices. Recession is a short-term economic decline typically identified by two consecutive quarters of negative GDP growth. Deflation is the opposite of inflation, signifying a decrease in the general price level of goods and services, which can lead to decreased consumer spending as people anticipate lower prices in the future. Understanding these distinctions crucially informs how individuals and policymakers respond to economic conditions.