Inflation decreases the value of money

Steps:

• Define inflation as a sustained increase in the general price level of goods and services.
• Recognize that higher prices mean each unit of currency buys fewer goods.
• Link this to the value of money, which is its purchasing power.
• Eliminate options not directly tied to this core definition.

Why D is correct:

• By definition, inflation erodes the purchasing power of money, so its value decreases as prices rise.

Why the others are wrong:

• A: Aggregate demand can increase prices, but inflation can also occur from supply shocks without demand rising.
• B: Decreasing aggregate supply can cause inflation, but demand-pull inflation happens without supply changes.
• C: Interest rates may rise in response to inflation, but they can also fall or stay stable depending on monetary policy.

Final answer: D