Inflation and deflation
Economics notes
Inflation and deflation
Inflation and deflation are two opposite economic phenomena related to changes in the general price level of goods and services over time. Inflation refers to a sustained increase in the average price level, leading to a decrease in the purchasing power of money. Deflation, on the other hand, is a sustained decrease in the average price level, leading to an increase in the purchasing power of money. Both inflation and deflation can have significant impacts on the economy and individuals. Understanding inflation and deflation helps policymakers, businesses, and individuals assess their implications, plan for the future, and make informed economic decisions.
What is inflation and deflation?
Inflation refers to a sustained increase in the general price level of goods and services, while deflation is a decrease in the general price level.
How is inflation measured?
Inflation is measured using various indicators, including the Consumer Price Index (CPI), Producer Price Index (PPI), and GDP deflator, which track changes in the general price level.
What are the causes of deflation?
Deflation can be caused by a decrease in aggregate demand, excess production capacity, technological advancements reducing production costs, or a decrease in the money supply.