Which electrical component is used to increase or decrease AC voltage?

The correct choice is the transformer, which is designed specifically to change the voltage level in alternating current (AC) circuits. A transformer operates on the principle of electromagnetic induction, utilizing two coils of wire (the primary and secondary windings) and a magnetic core. When an AC voltage is applied to the primary coil, it generates a magnetic field that induces a voltage in the secondary coil. By adjusting the number of turns of wire in each coil, a transformer can either increase (step-up) or decrease (step-down) the voltage.

The other components serve different purposes. Inductors primarily store energy in a magnetic field when current flows through them and can affect AC signals but do not change voltage levels like a transformer does. Capacitors store energy in an electric field and are often used for filtering or smoothing signals but also do not increase or decrease voltage on their own. Diodes allow current to flow in one direction only and are used primarily for rectification and controlling current flow, but they do not have the ability to adjust voltage levels. Thus, the transformer is uniquely capable of modifying AC voltage, making it the appropriate answer.