NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationEasy
A financial analyst is evaluating the current economic conditions and observes a sustained increase in the general price level of goods and services over a period. This phenomenon is commonly referred to as:
- ARecession
- BStagflation
- CInflation
- DDeflation
Show answer & explanationAnswer & explanation
Correct answer: C. Inflation
Inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time. It reduces the purchasing power of currency.
Why the other options are wrong
- A. A recession is a significant decline in economic activity spread across the economy.
- B. Stagflation is a combination of inflation, slow economic growth, and high unemployment.
- D. Deflation is a decrease in the general price level, the opposite of inflation.
Inflation
A sustained increase in the general price level of goods and services in an economy over a period of time, resulting in a reduction in purchasing power.
- Reduces purchasing power of money.
- Measured by indices like CPI and PPI.
- Can be caused by demand-pull or cost-push factors.
Memory trick: In-flation means prices are 'in'creasing.