What are the causes and effects of inflation, disinflation and - ProProfs Discuss
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What are the causes and effects of inflation, disinflation and deflation on an economy?



Asked by Sienna, Last updated: Nov 29, 2021

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W. Mocroft

W. Mocroft

Love to do some charity work. Have a passion for writing and do it in my spare time

W. Mocroft
W. Mocroft, Philanthropist, Master Degree in International Business, Las Vegas

Answered Jan 02, 2019

Causes and effects. An economy suffers a downturn from undue inflation, deflation and disenflation. Firstly, when demand is greater than supply of a commodity, or higher prices of a key element means higher costs, then there is inflation.

Consumers may find their price too great and shop elsewhere or opt out. Workers unable to meet the cost of goods they want may demand higher wages. Devaluation occurs when increasing cost of imported goods,and there is also a strong domestic demand. Deflation happens when there's a shift in the supply and demand for goods and services.

An increase in supply, a fall in demand, both figure. Rising wages increase firms costs and make consumers spend more. Disinflation is a fall in the inflation rate.that is, price level increases are at a slower rate.

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Inflation erodes the standard of living for those on a fixed income, it reduces the\r\nreal value of investments because the loans are paid back in dollars that buy less, and\r\nit distorts the signal that prices send to participants in the market. rising inflation\r\ntypically brings about rising interest rates and slower economic growth.\r\n disinflation is a decline in the rate at which prices rise, meaning a decrease in the rate\r\nof inflation. the phillips curve can be used to gauge the potential costs of disinflation.\r\n deflation is a sustained fall in prices where the annual change in the cpi is negative\r\nyear after year. although falling prices are generally good for the economy, a sustained\r\nfall in prices can have negative implications for corporate profits and the economy.

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