Which of the following is the BEST description of inflation?

The best description of inflation is a general increase in prices. Inflation refers to the overall rise in prices of goods and services in an economy over a period of time. When inflation occurs, the purchasing power of money falls, meaning that consumers can buy fewer goods and services than they could before due to higher prices.

While it is true that inflation can lead to a decrease in purchasing power, this is more of a consequence of inflation rather than its definition. Similarly, fluctuations in currency value can occur without inflation being present, as currency values can change based on various factors unrelated to the prices of goods and services. Lastly, a reduction in demand for goods typically relates to deflation, where prices decrease rather than increase.

Overall, defining inflation primarily as a general increase in prices captures its essence, as it indicates a sustained upward movement in the cost of living and affects economic activity.