Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What economic phenomenon is characterized by a general rise in prices leading to decreased purchasing power?

1. Deflation

2. Inflation

3. Stagnation

4. Recession

The correct answer is: Inflation

The phenomenon characterized by a general rise in prices, which leads to decreased purchasing power, is known as inflation. Inflation occurs when the overall level of prices for goods and services in an economy increases, which means that each unit of currency buys fewer goods and services. This can happen for various reasons, including increased demand for products, higher production costs, or expansionary monetary policies that increase the money supply in the economy. As prices rise, consumers find that their money does not stretch as far as it once did, effectively reducing their purchasing power. This decrease in purchasing power can affect consumer behavior, as individuals may need to adjust their spending habits to accommodate the higher costs of living. Understanding inflation is crucial for real estate professionals because it impacts property values, rental prices, and the overall economic environment in which real estate transactions take place.