Differences Between Inflation And Deflation

1638 Words4 Pages

Inflation is the increase in the overall level of prices in the economy and deflation is just the opposite. When there is inflation, it is resulted from too much money being circulated in the economy, causing prices to hike. On the other hand, deflation is caused by the decrease in the money supply, causing decreases in prices in the long run. Inflation is a trend that we have seen more recently in the United States, but there have also been times of deflation. Inflation and deflation affect multiple groups of the economy in different ways with each situation. Both of these situations have costs for consumers and producers. Being in one situation may cause incomes and employment to fall. There is a concern with both inflation and deflation because there are …show more content…

Those who are in debt end up in worst conditions because the demands of goods and services fall. This results in further depression of unemployment and a vortex of problems. The effects of deflation are much more unpredictable than inflation and often come as a surprise (text, Ch. 12-2h). On the surface level, deflation may be seen as a positive considering the decreased price levels, but it will result in a depression of problems for those in debt. Prices and income may fall but the amount of debt accumulated does not. If there is less money coming in, there is less to put towards what is owed. Deflation also has great effect on interest rates, taking account the low inflation rate shows that savings reduce if the nominal interest rate falls below zero and may provoke people to withdraw their savings (https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-4). This makes it more difficult for a bank to stimulate the economy. Overall deflation may seem like something that is good for consumers because of lower price levels, but a closer look shows more harm than

Show More
Related

  • Dinner Party Economics Summary

    1243 Words  | 3 Pages

    When interest rates on loans are high, this leaves people with less disposable income resulting in less consumer spending. Depending on where the economy stands, this can be good or bad, as it would lead toward recession. But that may be exactly what is intended in order to decrease spending if the economy is currently experiencing over-inflation. The government may intentionally send the market into a recession rather than potentially risking too high levels of inflation. On the other hand, if the economy were already in recession this would only make the recession worse. In the situation where the economy is currently in recession, the government is instead going to change the overnight rate in order to therefore lower interest rates on loans in order to provoke consumer

    Read More

  • The Pros And Cons Of Macropoland

    719 Words  | 2 Pages

    ...ts profit. This causes an increase in unemployment. Deflation also affects loans. When deflation occurs, borrowers are paying back loans in dollars that are worth less than expected. So one’s income may decrease, but the size of their loan stays the same, making it more difficult to pay off.

    Read More

  • Compare And Contrast Parole And Parole

    709 Words  | 2 Pages

    Intensive Supervised Probation: Is for those offenders that are monitored constantly and closely but are not as much of a threat to the community as they are to a prison.

    Read More

  • The Great Recession

    670 Words  | 2 Pages

    What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).

    Read More

  • The American Dream of Home Ownership

    1366 Words  | 3 Pages

    dropped 10.9% causing the home market to suffer. Individuals who have subprime mortgagees to finance these less expensive homes are often times forced into foreclosure due to substantial rate changes. In affect, the economy faces acontinuing negative cycle of subprime delinquencies that result in tighter credit and lower home prices.17 A worsening of the American housing market will negatively affect the consumers confidence while at the same time worsening the American economy.18

    Read More

  • Compare And Contrast Keynes And Hayek

    1556 Words  | 4 Pages

    Keynes and Hayek each approach the economy from a different perspective. In Keynes’ estimation, it is all about the flow of money. The economy is improving when money is moving, and thus, stability is achieved as much as is possible. Consequently, spending, and more specifically government spending, is the key to unlock the door blocking economic growth. By contrast, Hayek contends that money is not everything. What the money is used for, whether it be saved, invested, loaned, or spent, also plays an important role in the progression of the economy. Growth comes from saving and investing not consumption and spending. The stability of the economy, according to Hayek, is brought about by the forces of supply and demand.

    Read More

  • Differences Between Enlightenment And The Great Awakening

    1389 Words  | 3 Pages

    War is disgusting. It is a casualty that brings death, destruction, barbarous annihilation, disease, famine, starvation and misery amongst hundreds to thousands of people. No country wants something so abominable to occur to them however, wars have happened countless times throughout history. It is due to the fact that disputes and disagreements arise amongst two or more different parties, resulting in war being inevitable. In respects to the American Revolution, America reached a breaking point with the British Empire that eventually developed into the American Revolutionary War.

    Read More

  • Stagflation Case Study

    715 Words  | 2 Pages

    Different factors are responsible for the different consequences. But the consequences are mainly from the first two factors. The first factor inflation would probably be responsible for fall in real incomes where people with a fixed wage or contract would get the same nominal value of money while the real value has decreased or the people getting poorer if they have saved their money in saving accounts where the interest rate is lower than the inflation rate. The second factor, unemployment, would also be responsible for different economic problems too. These problems may include the loss of real output (real GDP) as the economy has unused labor so its producing inside the PPC curve, a loss of tax revenue for the government as unemployed people don’t pay taxes and this is also followed by costs to the government for unemployment benefits which it provides for unemployed people.

    Read More

  • Differences Between Numeracy And Mathematics

    707 Words  | 2 Pages

    While numeracy and mathematics are often linked together in similar concepts, they are very different from one another. Mathematics is often the abstract use of numbers, letters in a functional way. While numeracy is basically the concept of applying mathematics in the real world and identifying when and where we are using mathematics. However, even though they do have differences there can be a similarity found, in the primary school mathematics curriculum (Siemon et al, 2015, p.172). Which are the skills we use to understand our number systems, and how numeracy includes the disposition think mathematically.

    Read More

  • Interest Rates On The Economy

    1462 Words  | 3 Pages

    ...two aspects, nominal and real, both measuring two different controls. Nominal measures what is considered a “price tag” of a loan, which includes the price of inflation. While real measures the cost of a loan without inflationary rates. From nominal and real rates there are also lowered and raised rates. When the interest rate is lowered consumer spending grows while savings decrease. Spending on items such as housing becomes one of the ways the AD rises. Though AD rises it pulls the economy out lack of spending, but puts the economy into the possibility of inflation. Differentiating from low rates, high rates stop inflation but creates the possibility of recession. High interest rates create a fall in demand for goods and services. This fall of AD puts a stop to spending, borrowing and much more, creating the incentive to save ultimately putting a haul to inflation.

    Read More

  • Relationship Between Inflation and Unemployment

    1860 Words  | 4 Pages

    Inflation refers to an increase in overall level of prices within an economy. In simple words, it means you have to pay more money to get the same amount of goods or services as you acquired before. By contrast, the term unemployment is easier to understand. Generally, it refers to those people who are available for work but do not find a work. And unemployment rate, which is the percentage of the labour force that is unemployed, is usually used to measure unemployment (Mankiw 1992).

    Read More

  • The Debt Crisis in Malaysia

    1035 Words  | 3 Pages

    In a nutshell, debt crisis should be treated immediately with actions such as providing sufficient training and courses, improving individual’s personal finance skill, and filtering the recruiting of employees’ process in order to prevent it from extent. The upcoming generations should have given more awareness towards this issue. If no immediate actions are taken, I believe in future the debt crisis will get worse.

    Read More

  • Causes Of Inflation Essay

    1416 Words  | 3 Pages

    Inflation is defined as an increase in the expected price level and has been the signal for an improving economy, but it has also weakened an economy due to the unemployment it usually produces which usually hurts the Middle class the most. A healthy rate of inflation means an expanding economy due to higher tax revenues for the government and higher wages for businesses that are booming due to the high demand of their products. But if inflation surpasses of what is expected than employer will have to reduce wages to meet these new prices. When the Federal Reserve creates inflation most argue that this is robbing people of the money that they have saved because they have to use it due to the rise in prices. Printing

    Read More

  • Inflation And Inflation Essay

    1766 Words  | 4 Pages

    Inflation is the rate at which the purchasing power of currency is falling, consequently, the general level of prices for goods and services is rising. Central banks endeavor to point of confinement inflation, and maintain a strategic distance from collapse i.e. deflation, with a specific end goal to keep the economy running smoothly.

    Read More

  • Effects Of Inflation Essay

    1615 Words  | 4 Pages

    Inflation is one of the most important economic issues in the world. It can be defined as the price of goods and services rising over monthly or yearly. Inflation leads to a decline in the value of money, it means that we cannot buy something at a price that same as before. This situation will increase our cost of living.

    Read More

More about Differences Between Inflation And Deflation

Open Document