Which scenario describes inflation?

Inflation refers to the general increase in prices and the decline in purchasing power of money over time. The scenario that illustrates inflation accurately is characterized by rising costs which lead to higher pricing strategies by businesses. When inflation occurs, the costs of goods and services increase, prompting businesses to adjust their pricing to maintain profit margins. This situation can result from various factors, including increased demand, higher production costs, or expansionary monetary policies.

In contrast, stable prices over extended periods indicate a lack of inflation, as prices do not exhibit significant upward movement. Significant declines in economic activity are more reflective of a recession or economic downturn rather than inflation. A sudden drop in currency value can lead to inflation, but it's not a direct description of inflation itself; it can also occur due to factors outside the traditional inflation model. Thus, the scenario involving rising costs and higher pricing strategies best represents the essence of inflation.