Diffrence between inflation and deflation ? How it effects the economic growth
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Inflation occurs when the price of goods and services rise, while deflation occurs when those prices decrease. The balance betweenthe two economic conditions, opposites of the same coin, is delicate, and an economy can quickly swing from one condition to the other
When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate and government bond yields, and every other facet of the economy.
When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate and government bond yields, and every other facet of the economy.
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Inflation is a situation when the prices of goods and services get a boost, thus decreasing the buying power of money. It is the continuous upward movement in the general price level of the economy.The following are the types of inflation:
Demand-pull inflation
Cost-push inflation
Stagflation
Deflation
In India,measurement of inflation is done with the help of Wholesale Price Index (WPI) and Consumer Price Index (CPI). Inflation can be caused due to rise in public expenditure, tax evasion on a large scale, deficit financing, uneven agricultural growth, black marketing, hoarding, etc.
On the other hand deflation, it is opposite of inflation, whereby prices of goods and services fall and people can purchase more goods with the limited money. It is the decrease in the general price level, in the country’s economy.This is also known by the name negative inflation because when the inflation rate is < 0%, deflation arises.
The following are the types of deflation:
Money supply side deflation
Credit deflation
Debt deflation
A certain percentage of inflation is good, but beyond that, is worse for every economy. Moreover, deflation is the worst condition for an economy. In this article excerpt, we have simplified the differences between inflation and deflation in tabular form.
Effects of Deflation
Deflation may have the following impacts on an economy:
1. Reduction in Business Revenues
In an economy faced with deflation, businesses must drastically reduce the prices of their products or services to stay profitable. As reducing in prices take place, revenues begin to drop.
2. Lowered Wages and Layoffs
When revenues begin to drop, businesses need to find means to reduce their expenses to meet objectives. One way is by reducing wages and cutting jobs. This adversely affects the economy as consumers would now have less to spend.
Positive effect of inflation ---
1.A small amount of inflation creates confidence in the market of not going down to deflation, driving positive consumption and investment, driving economic growth.
2.Although not always the case, moderate inflation is also correlated to some extent with growth of nominal GDP, meaning if done right, this can contribute to an increase in real GDP.
3.There is a famous hypothesis called the Phillip's curve, which posits a negative correlation between inflation and unemployment. The validity of the curve is much disputed and the concept has since been modified.
Negative effect of Inflation -----
1. loss of savings
2. Decrease of debt
3.wage price spiral
4.Effects associated with depreciation in your currency
Demand-pull inflation
Cost-push inflation
Stagflation
Deflation
In India,measurement of inflation is done with the help of Wholesale Price Index (WPI) and Consumer Price Index (CPI). Inflation can be caused due to rise in public expenditure, tax evasion on a large scale, deficit financing, uneven agricultural growth, black marketing, hoarding, etc.
On the other hand deflation, it is opposite of inflation, whereby prices of goods and services fall and people can purchase more goods with the limited money. It is the decrease in the general price level, in the country’s economy.This is also known by the name negative inflation because when the inflation rate is < 0%, deflation arises.
The following are the types of deflation:
Money supply side deflation
Credit deflation
Debt deflation
A certain percentage of inflation is good, but beyond that, is worse for every economy. Moreover, deflation is the worst condition for an economy. In this article excerpt, we have simplified the differences between inflation and deflation in tabular form.
Effects of Deflation
Deflation may have the following impacts on an economy:
1. Reduction in Business Revenues
In an economy faced with deflation, businesses must drastically reduce the prices of their products or services to stay profitable. As reducing in prices take place, revenues begin to drop.
2. Lowered Wages and Layoffs
When revenues begin to drop, businesses need to find means to reduce their expenses to meet objectives. One way is by reducing wages and cutting jobs. This adversely affects the economy as consumers would now have less to spend.
Positive effect of inflation ---
1.A small amount of inflation creates confidence in the market of not going down to deflation, driving positive consumption and investment, driving economic growth.
2.Although not always the case, moderate inflation is also correlated to some extent with growth of nominal GDP, meaning if done right, this can contribute to an increase in real GDP.
3.There is a famous hypothesis called the Phillip's curve, which posits a negative correlation between inflation and unemployment. The validity of the curve is much disputed and the concept has since been modified.
Negative effect of Inflation -----
1. loss of savings
2. Decrease of debt
3.wage price spiral
4.Effects associated with depreciation in your currency
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