A-Z Popular Blog Economic Problems Search »
Economic Problems
 Advertisements
Related Guides

Inflation vs Deflation

 , updated on
Inflation is a sustained increase in the price of goods and services. Deflation is a sustained decrease in prices.
A small amount of inflation is generally considered good for an economy as it encourages consumers to spend and people to invest productively.
Deflation, even a small amount of deflation, is typically viewed negatively. When prices are always dropping, consumers have incentive to delay purchases resulting in less economic activity. This can cause businesses to close and the unemployment rate to go up. A high unemployment rate means that employees can't demand a high salary because jobs are scarce. This tends to reduce prices further in a downward spiral.
Another negative impact of deflation is that it discourages investors from taking risk. When cash is increasing in value you can make money by doing nothing with your savings. This discourages people from starting businesses and employing people.
Economists tend to recommend a low inflation rate as a target because it keeps people spending and people investing their money into productive ventures. A high inflation rate can be just as damaging as deflation, in some cases it is far worse.
Inflation vs Deflation
Inflation
Deflation
Definition
A sustained increase in the price of goods and services.
A sustained decrease in the price of goods and services.
Impact
A low inflation rate may be conductive to economic growth.
A high inflation rate and hyperinflation have negative impacts.
Generally viewed negatively as it discourages productive investment and spending.
Next: Economic Problems
More about economic problems:
Bubbles
Capital Flight
Deflation
Economic Issues
Economic Outcomes
Economic Problems
Excess Burden
Hyperinflation
Inflation
Supply Shock
Trade War
Unemployment
Zombie Company
If you enjoyed this page, please consider bookmarking Simplicable.
 

Economic Problems

Several types of severe economic problems.

Economic Issues

A list of common economic issues.

Scarcity Examples

An overview of scarcity with examples.

Unemployment

An overview of unemployment with examples.

Unemployment Types

The common types of unemployment.

Recession Definition

A few definitions of recession.

Economic Outcomes

A list of common economic outcomes.

Economics

Everyday examples of economics.

Competitiveness

An overview of economic competitiveness with examples.

Business Clusters

An overview of business clusters with examples.

City Economics

An overview of city economics with examples.

Creative Economy

A list of business models and industries in the creative economy.

Price Floor

An overview of price floors with examples.

Productivity Benefits

A list of the benefits of productivity for societies, firms and individuals.

Equilibrium

An overview of equilibrium with examples.

Financial Industry

An overview of the financial industry with examples.

Economic Institutions

An overview of economic institutions with examples.

Intermediate Goods

An overview of intermediate goods with examples.

Time Efficiency

An overview of time efficiency with examples.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map