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Grade inflation is the situation wherein a fixed letter grade comes to represent a lower level of student performance than it used to, where student performance is determined by some fixed, non-grade form of assessment.
Claims of grade inflation have a long history. In 1894, a Harvard University report concluded "Grades A and B are sometimes given too readily...insincere students gain passable grades by sham work" ("Report of the Committe on Rasing the Standard"). The issue has steadily reappeared since.
Note that the meaning of any particular letter grade is entirely subjective and highly dependent on historical context. Indeed, Alfie Kohn notes "Decades of research have found that there is often wide variation in the grade assigned to a single piece of work submitted at two different times--even to the same instructor." As such, it would be at least somewhat misleading to say that grade inflation reflects teachers' misunderstanding of or disregard for the "true meanings" of each letter grade, since no objective way of determining a grade's "true meaning" exists (or could).
It is widely claimed that, at least, more good grades are being given out, at least in the United States. But even these moderate claims are difficult to substantiate, often based on the self-reporting of a self-selected segment of the population. Some more thorough investigations have shown the opposite Clifford Adelman, a senior research analyst with the U.S. Department of Education, reviewed official transcripts and found "grades actually declined slightly in the last two decades."
But even where grades are increasing, the work they are given for must be compared against a grade-independent standard. Such comparisons are hard to come by; national decreases in average SAT are uninformative since more students now take the SAT than before. Most institutional averages (e.g. the average SAT scores of Harvard entrants over time) show an increase, a likely cause of increased grades.
But even if grades are going up against the standard, this is only meaningful to the extent that grades and the standard are. If one does not believe the SAT reliably measures educational talent, then the fact that grade inflation has occurred with respect to it is of no consequence. (For example, if, as a number of studies have shown, the SAT primarily measures the environment a child grew up in, then one might not be too concerned that less privileged children are doing better than before.)
Similarly, if one believes the purpose of a school is to gain a better oneself and gain an understanding of the subjects, then they might not care too much if people are getting better grades than before. Indeed, it could be a positive development since it might lessen the effects some argue that grades have. (See, e.g. Punished By Rewards by Stanford University and Harvard University, for example, are notorious for the way their grade inflation is more extreme than their peers'. To see how things play out between departments, consider Harvard. Although its grades have been inflating overall, its science and mathematics departments have largely been able to resist grade inflation. If someone evaluates a Harvard math or science student in light of the overall grade inflation at Harvard, this may place the student at an unfair disadvantage.
Consensus among educators in the United States is that grade inflation is a real phenomenon. An often-cited cause for this is pressure upon the teacher: Educators are pressured by parents, students, and schools to give higher grades. This is especially true since, if other schools are inflating grades, any school that takes a "hold out" stance will place its students at a disadvantage.
Many schools exhibit increases in grades that may not be related to a decrease in academic standards. Alternative theories regarding the increase in student grades over the years: