What economic condition is described as a decrease in price levels?

The correct answer is deflation, which refers to a decrease in the general price levels of goods and services in an economy over a period of time. Deflation typically occurs when there is a decline in consumer demand or when the supply of goods exceeds demand, causing prices to drop. This situation can lead to increased purchasing power for consumers, as their money can buy more goods and services than before.

When deflation occurs, it can also indicate underlying economic issues, such as reduced spending by consumers and businesses, which may lead to decreased production, lower wages, and potentially higher unemployment rates. Understanding deflation is essential for economists and policymakers, as it can have significant implications for monetary policy and economic stability.

In contrast, inflation refers to the increase in price levels, stagnation signifies a period of slow economic growth with high unemployment, and recession is characterized by a decline in economic activity across the economy for an extended period. These terms highlight different economic phenomena and their effects on the marketplace.