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Pros and Cons of Inflation and Deflation


Discuss whether inflation causes more problems than deflation.


Inflation and Deflation

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Preview Answer

- Definition of inflation and deflation
- Importance of understanding their effects on the economy

Body Paragraph ➡️1:
- Disadvantages of inflation
- Reduction in the value of money and spending power
- High rates of inflation can significantly reduce the value of money
- Fluctuating inflation creates uncertainty
- Adverse effects on savers and living standards
- Negative impact on international competitiveness

Body Paragraph ➡️2:
- Advantages of deflation
- Technological advances can lower production costs and increase output
- Positive impact on employment and the current account

Body Paragraph ➡️3:
- Disadvantages of deflation
- Decrease in total demand can lead to reduced output and profits
- Unemployment may increase
- Negative impact on borrowers

Body Paragraph ➡️4:
- Advantages of inflation
- Borrowers benefit from reduced debt burden
- Low rates of inflation can stimulate production

- Recap of the advantages and disadvantages of inflation and deflation
- Importance of maintaining a stable inflation rate for a healthy economy.

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