How does inflation primarily differ from deflation?

Question

a. inflation tracks changing prices, but deflation does not.
b. inflation happens only when the money supply is too small
c. inflation relates to rising rather than falling prices.
d. inflation occurs much less often than deflation does.

Answer 1

The primary difference between inflation and deflation is best captured by the following option:

c. inflation relates to rising rather than falling prices.

Inflation refers to the increase in the general price level of goods and services over time, which means that purchasing power declines. In contrast, deflation involves a decrease in the general price level, leading to an increase in purchasing power. The other options do not accurately distinguish between the two concepts.