The term inflation is used to describe a situation in which

a. the economy is growing rapidly.

b. the overall level of prices in the economy is increasing.

c. incomes in the economy are increasing.

d. stock-market prices are rising.

The correct answer is option b.

Explanation:

Inflation refers to the continuous and sustained growth in the general price level. As the price level rises, it reduces the purchasing power or value of cash balances held by the consumers to reduce. This causes real income to decline.

A certain level of inflation is desirable in an economy to promote growth but a high rate of inflation is harmful. Inflation can be of several types such as

Demand-pull inflation Cost-push inflation

There are several measures used to calculate inflation, for instance, the consumer price index. To correct inflationary pressures, a government uses contractionary fiscal and monetary policy.