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    Inflation results in a fall in the purchasing power of money in real terms. Difference Between Inflation and Deflation In macroeconomics, we study about two burning issues of every country of the world, i.e. When there is inflation, it is resulted from too much money being circulated in the economy, causing prices to hike. inflation and deflation. It's historically only caused by massive military spending. Deflation is the decrease in the general price level. The price level represents the prices of most products in an economy. Inflation is unjust: A rapid increase in prices unjust on the following grounds: Inflation deprives the consumers of … Which is typically called “The Inflation Rate“. Most of the time, inflation is heard when speaking about the economy. But if it is not contained, it can degenerate into hyperinflation, wreaking serious havoc. The general price level of goods and services in the economy may show a positive trend, a downward trend or a slowdown in the positive trend. Differences between inflation and deflation. For example, deflation would be an inflation rate of -1 percent, while disinflation would be a change in the inflation rate from 3 percent one year to 2 percent in the next. Debt deflation, money supply side deflation, credit deflation. It is the… Read More »Difference between Inflation and Deflation Economists use various price indexes to study this phenomenon. Although they all show the behavior of Price level but They are different in their direction and change in the Rate of Price Level. The difference between deflation and disinflation can be drawn clearly on the following grounds: Deflation is described as a condition where the general price level declines, in the entire economy. In economics both inflation and deflation refers to changes in prices of goods and services purchased by the consumer, however the effect of inflation and deflation on the consumer as well as on the economy is completely different. Differences Between Inflation And Deflation. Waller Starky - Updated September 29, 2017 . Inflation and deflation - definition and consequences of monetary expansion or contraction. That will give you the amount of inflation in one year. Conversely, deflation increases the real value of money and this allows one to buy more goods with the same amount of money. Difference between Inflation and Deflation. Inflation- Filling an object up fill oxygen ( or some other kind of gas) Deflation- emptying an object of oxygen(or some othe rkind of gas) Think of it this way when you breathe in it's inflation of the lungs because they're filling up with air and when you breathe out it's deflation of the lungs because the air is leaving them. Both inflation and deflation have to do with movement. Difference Between Consumer Price Index (CPI) and Gross Domestic Product (GDP) Deflator Difference between Wholesale Price Index (WPI) and Consumer Price Index (CPI) Difference Between Inflation and Deflation Difference Between Depression and Recession Difference Between Deflation and Disinflation Thus, the prices of most products are increasing during periods of inflation. As pointed out by Keynes, “Inflation is unjust, deflation is inexpedient. Inflation occurs when the price of goods and services rise, while deflation occurs when those prices decrease. When prices are consistently dropping, a condition known as deflation, people tend to hold on to their money. There is so much controversy and confusion around the term Inflation and deflation among students. The balance between the two economic conditions, opposites of the same coin, is delicate, and an economy can quickly swing from one condition to the other. Email . Fortunately, it's rare. Share . Inflation is the rise in cost of a commodity or good with respect to time. While inflation and deflation are well known by students even before entering their first economics class, disinflation is a different story. Inflation is when the value of money declines so it takes more dollars to purchase the same goods or services. How to Tell the Difference Between Inflation and Deflation . You can view samples of our professional work here. Demand pull inflation, cost push inflation, stagflation and deflation. It occurs when the inflation rate falls below 0%. Of the two—inflation and deflation—which is better than the other. Difference between inflation and deflation. 2686 words (11 pages) Essay. Disinflation is a state when there is a fall in the inflation rate over time. Some of the common indexes that are used to understand the change in prices are Consumer price index, Wholesale price index, and Personal consumption expenditure price index. Inflation also causes people to invest money productively to prevent the value of savings from declining. A little bit of inflation is a symbol of economic growth of the country. Both result in low investments, low incomes, high levels of unemployment and low product outputs; In both, the interest rates are reduced to salvage the situation; Differences between Recession and Deflation Definition Due to the current crisis situation we are living, we are often seeing in the media the terms “inflation” and “deflation”. Tweet . Inflation results in distribution of income in favour of rich. On the other end of the scale is asset inflation, which occurs somewhere almost all the time. This allows more goods and services to be bought than before with the same amount of currency. Print . Inflation, when controlled, can have positive effects on a country’s economy. In this lecture You will learn what is the difference between inflation and deflation. 1638 Words 7 Pages. A critical difference between inflation and deflation is the change in the purchasing power of money. Difference between inflation and deflation a) Explain what is meant by inflation and deflation, clearly distinguish between them. Inflation is commonly understood as a situation of substantial and rapid general increase in the level of prices and consequent deterioration in the value of money over a … Deflation :refers to situation,where there is decline in general price levels, hence deflation occurs when the inflation rate falls below 0%. Of the two deflations is worse. Inflation and deflation is inexpedient, but of the two perhaps deflation is the worse. There are five types of inflation. The forces of supply and demand still determine prices in individual markets. Deflation Deflation is a decrease in the general price level of goods and services. double-digit inflation I think when prices between … Disinflation While at first glance a lower rate of inflation would seem to be positive—and indeed it usually is for those who own bonds, since it increases their real (after inflation) returns —that may not always be true. Thus, deflation occurs when the inflation rate falls below 0% (or it is negative inflation rate). Cons of Supply Side Economics. I hope this helps Normally, the inflation rate is calculated on an annual basis for example from July 2007 until July 2008. Of course, both are equally bad in their effects on the society. Based on these scenarios, concepts such as inflation, deflation, and disinflation come into the picture. 4th May 2017 Economics Reference this Disclaimer: This work has been submitted by a university student. If one is given a choice between inflation and deflation, then the adoption perhaps is the worse. Inflation reduces the value of currency over time, but deflation increases it. It means that if there is an inflationary trend in the economy, a person will be able to buy a lesser quantity of goods with the same amount of money. Rise in the level of unemployment: Which is evil? They are also most debated and a hot topic of group discussions. Deflation is the opposite of inflation, prices fall (Kenny, 2017). First Economics class, disinflation is a symbol of economic growth of the two—inflation and is. Disinflation come into the picture by our Essay Writing difference between inflation and deflation goes down or lessens and inflation increases gets!, people tend to hold on to their money expansion or contraction in distribution of income in of. Can have positive effects on a country ’ s economy scale is asset inflation, too much money circulated! Of supply and demand still determine prices in the economy and deflation Difference between inflation and are. 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