Inflation primarily differs from deflation in that
A. Inflation tracks changing prices but deflation does not.
B. Inflation relates to rising rather than falling prices. **
C. Inflation happens only when the money supply is too small.
D. Inflation occurs much less often than deflation does.
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The correct answer is B. Inflation relates to rising rather than falling prices.
To determine this, we need to understand the definitions of inflation and deflation.
Inflation refers to a sustained increase in the general price level of goods and services in an economy over a period of time. It means that, on average, prices are rising. This can happen due to various factors such as increased demand, higher production costs, or an increase in the money supply.
Deflation, on the other hand, refers to a sustained decrease in the general price level of goods and services. It means that, on average, prices are falling. Deflation can occur due to factors such as reduced demand, lower production costs, or a decrease in the money supply.
So, based on these definitions, we can eliminate options C and D as they do not accurately describe the differences between inflation and deflation.
Option A states that inflation tracks changing prices but deflation does not. This is not entirely accurate. Both inflation and deflation refer to changing prices, but in opposite directions. Inflation is characterized by rising prices, while deflation is characterized by falling prices.
Therefore, the correct answer is B. Inflation primarily differs from deflation in that it relates to rising rather than falling prices.