What economic condition results in a decrease in prices, thereby increasing the purchasing power of currency?

The correct answer is deflation because deflation refers to a sustained decrease in the general price level of goods and services in an economy. As prices fall, the purchasing power of currency increases, meaning consumers can buy more with the same amount of money. This phenomenon can arise from various factors, such as reduced demand for goods and services, increased productivity, or an oversupply in the market.

In a deflationary environment, consumers may delay purchases in anticipation of lower prices, which can further suppress economic activity, leading to a potential downward spiral. However, the key aspect of deflation is its direct relationship with price levels and purchasing power—when prices decrease, money effectively gains value.