My delightful wall by Rachna Shukla

Inflation Vs Deflation

rachna_shukla15 — 2023-11-13 20:20:48 UTC

Do you think deflation poses a bigger risk than inflation for an economy ? Justify your answer.

Kyle

2023-11-14 09:57:24 UTC

I think that deflation poses a smaller risk than inflation for an economy. Inflation is caused by an increase in prices and the decline in the purchasing value of money within an economy. Deflation is the opposite and is the general decline in the price levels of goods and services. I believe deflation is a smaller risk than inflation as, it has many downsides. One of the downsides of inflation is that it can result in a inflationary spiral. An inflationary spiral is a continuous rise in prices that is sustain by cost increases and wage increases reacting against each other which overtime may result in hyperinflation which is very hard to counteract (or correct itself). Whilst there is also deflationary spiral i believe that it is less of a risk than an inflationary spiral as it is more easily corrected. Inflation can also cause a cost of living crisis and large discrepancies between different parties within the economy for example borrowers will win and lenders will lose due to the real value of the money increasing.

Adittya Sakline

2023-11-14 09:57:31 UTC

Deflation is the decrease in the general price of goods and services in an economy, depending on the rate of deflation, it may cause a deflationary spiral, where prices decrease, leading to lower production as producers are less willing to supply at these levels, the hai cause a decrease in sales revenue and thus a decrease in wages, as people will now have lesser spending capacities, demand will decrease and prices will continue to decline for these reasons, this may eventually cause debt defaults and eventually bankruptcies, Thai is bad for the economy as it cause further unemployment aswell as reduces the amount of producers in the economy, thus decreasing the amount of goods and services sold, during inflationary periods prices may increase to cost push inflation, where increases in productions costs are charged back to consumers, thus raising prices for goods and services, otherwise the inflationary period may be due to demand pull inflation, where an excess of demand over excess of supply cause prices to rise as the market mechanism increases prices to allocate scarce resources, however during demand pull inflation, producers may be incentivised to to start supplying at these prices thus increasing supply, this is beneficial as now these prices have economic backing, the increase in production may cause employment and Thus increase wages and increase the amount of goods and service sold in an economy,”.

If there is demand pull inflation, it may be beneficial as it grows the economy, whilst if it is cost push

Raiyan

2023-11-14 09:57:35 UTC

Both deflation and inflation can pose crucial threats to an economy. To evaluate which phenomenon is more or less harmful, one must look at the defining features and consequences of both inflation and deflation. Deflation can be described as the persistent fall in general price level. Oppositely, inflation is the increase in general price level in an economy. Deflation can negatively impact an economy as a fall in demand causes a fall in prices leading to higher unemployment due to a smaller production scale. However, deflation can also benefit an economy as cost of living decreases allowing for many to lift themself out of poverty. A negative impact of inflation can include a discouragement of investment as uncertainty makes it difficult for firms to plan ahead, disincentivising investors to invest. Moreover, inflationary noice can distort price levels and distort signals leading to a mid allocation of recourses.

diyala

2023-11-14 09:57:58 UTC

Deflation can have increased consumer power, however it also may have a larger negative impact on an economy rather than inflation due to the debt levels staying constant. Interest payments also increase since they have they are the majority proportion of the household incomes. Since unemployment rates will rise, those who are unemployed may lose their savings due to having to spend the savings, taking them into bankruptcy, therefore overall debt is increasing and the economy may start to have an increased burden of debt.

Zoya

2023-11-14 09:59:23 UTC

Both deflation and inflation propose risks to an economy due to their consequences that evolve into negative impacts on the economy as a whole. The two main causes of inflation include demand pull, where the aggregate demand for goods and services exceeds aggregate supply which increases prices however it also increases the output. Cost push inflation leads to high levels of unemployment. During times of inflation cost of living increases but I’m times of deflation cost of living decreases. Malign deflation also known as bad deflation, is the fall in general price level which is associated with weak demand as the aggregate demand falls leading to a decrease in output and therefore unemployment. Benign deflation (good inflation) occurs associated with advanced technology with an outwards shift in the aggregate supply curve. Deflation is a smaller risk due to the risk being a burden on bigger firms and governments and not individual consumers themselves with cost of living factors.