An indication that there is inflation in a country is that

Answer Details

Inflation is a sustained rise in the general price level of goods and services over time. The most direct and observable consequence of inflation is that the purchasing power of money falls - meaning the same amount of money buys a lower quantity of goods than it did before.

If a loaf of bread cost 500 naira last year and now costs 700 naira, a person with 500 naira can no longer afford a full loaf. The money has not physically changed, but its value in terms of what it can purchase has declined. This is the defining indicator that inflation is occurring in an economy.

The other options do not correctly indicate inflation:

• A decrease in the demand for goods and services would tend to push prices down, not up.
• During inflation, people prefer to borrow rather than lend, because they can repay loans with money that is worth less in the future. Lenders lose out during inflation.
• Too many goods in circulation would create a surplus, which would drive prices down, not up. Inflation is associated with too much money chasing too few goods, not an excess of goods.