What term refers to a rise in the general level of prices in an economy?

The term that refers to a rise in the general level of prices in an economy is inflation. Inflation signifies that, on average, the cost of goods and services is increasing, leading to a decrease in purchasing power. Essentially, when inflation occurs, each unit of currency buys fewer goods and services than it did previously. This is a critical concept in economics, as it affects consumers, businesses, and government policy.

In contrast, deflation refers to a decrease in the general price level of goods and services, effectively the opposite of inflation. Stability relates to a condition in which prices do not fluctuate significantly, indicating a balanced economic environment but not necessarily a rise in prices. Depreciation generally refers to the reduction in the value of an asset over time, which is not directly related to the general price levels in an economy. Understanding inflation is crucial for analyzing economic conditions as it impacts interest rates, wages, and ultimately the cost of living.