Which of the statements is the best description of inflation? The prices of only consumer goods are increasing. The price of all goods and services have increased proportionately. The price of all goods and services in the economy are increasing. Real GDP is rising. An increase in the overall price level has occurred.

An increase in the overall price level has occurred.

Explanation:

Inflation can be defined as the persistent general rise in the price of goods and services in an economy at a specific period of time.

Mathematically, inflation is given by the formula;

Inflation = Nominal interest - Real interest rate

Hence, the best description of inflation is an increase in the overall price level has occurred.

Additionally, economics can be classified into two (2) main categories, namely;

1. Macroeconomics can be defined as the study of behaviors, performance and factors that affect the entire economy. Hence, it focuses on aggregate phenomena such as price level, economic growth, Gross Domestic Product (GDP), inflation, unemployment and national income levels with respect to the central bank, demand or supply shocks, government policies, aggregate spending and savings.

2. Microeconomics can be defined as the study of the effect of price and quantity levels through interactions between individual buyers and sellers in various markets. Simply stated, it focuses on analyzing or evaluating the decisions of consumers (buyers) and those of firms (sellers) such as methods of production, pricing; and the manner in which government policies affect those decisions.

Hence, macroeconomic is a kind of externalities that affects the levels of unemployment, inflation, or growth in the economy as a whole.

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