Which of the following best describes inflation?

A general increase in prices characterizes inflation, reflecting the overall rise in the cost of goods and services within an economy over a specific period. This phenomenon indicates that, on average, consumers are required to spend more money to purchase the same products, which ultimately erodes purchasing power. It is often measured by the percentage change in price indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).

Inflation can be driven by various factors, including increased demand, rising production costs, or expansive monetary policy. Understanding inflation is critical for economic analysis as it affects consumer behavior, business investment decisions, and monetary policy implementation by central banks.

The other options do not accurately capture the essence of inflation. While a decrease in interest rates may be a response to economic conditions, it is not a definition of inflation. Similarly, an increase in the stock market does not inherently signify inflation and could occur in various economic contexts. Lastly, describing a downturn in the economy does not relate to the concept of inflation, but rather to economic contraction or recession.