how are deflation and inflation similar and different?
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Inflation occurs when the prices of goods and services rise, while deflation occurs when those prices decrease. The balance between these two economic conditions, opposite sides of the same coin, is delicate and an economy can quickly swing from one condition to the other.
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However, inflation is just one factor among many that combine to influence a country's exchange rate. Inflation is more likely to have a significant negative effect, rather than a significant positive effect, on a currency's value and foreign exchange rate.
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There are two main types of inflation: demand pull and cost push. Fueled by income and strong consumer demand, demand-pull inflation occurs when the economy demands more goods and services than are available.
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Key Takeaways. Cost-push inflation is the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. ... Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.
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So printing of money should always match the total production of goods and services in the country or else inflation can destroy the economy. Inflation is the increase in the prices of goods and services over time. ... Inflation increases your cost of living. Inflation reduces the purchasing power of each unit of currency.
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The GDP deflator is a measure of price inflation. It is calculated by dividing Nominal GDP by Real GDP and then multiplying by 100.
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Demand-pull inflation occurs when aggregate demand within the economy increases. ... Cost-push inflation occurs when the costs of production are increased (e.g. wages or oil) and the supplier forwards those costs onto consumers.
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The first is that GDP Deflator includes only domestic goods and not anything that is imported. ... The second difference is that the GDP Deflator is a measure of the prices of all goods and services while the CPI is a measure of only goods bought by consumers.
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The first difference is that the GDP deflator measures the prices of all goods and services produced, whereas the CPI or RPI measures the prices of only the goods and services bought by consumers. ... The third difference concerns how the two measures aggregate the many prices in the economy.
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As verbs the difference between deflate and inflate is that deflate is to cause an object to decrease or become smaller in some parameter, eg to shrink while inflate is to enlarge an object by pushing air (or a gas) into it; to raise or expand abnormally.
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Low levels of unemployment correspond with higher inflation, while high unemployment corresponds with lower inflation and even deflation. ... When unemployment is low, more consumers have discretionary income to purchase goods. Demand for goods rises, and when demand rises, prices follow.
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Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time. ... Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation's currency.
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Simply put, the difference between these theories is that monetarist economics involves the control of money in the economy, while Keynesian economics involves government expenditures. ... Both of these macroeconomic theories directly impact the way lawmakers create fiscal and monetary policies.
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Keynesian economics tends to view inflation as a price that might sometimes be paid for lower unemployment; neoclassical economics tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment.
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The short answer is that the discount rate is the rate set by the FED, or equivalent central bank in a country, and the inflation rate is the rate of decrease in purchasing power as measured year over year. The discount rate is the cost of borrowing from the central bank for large banks.
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Relative Price Changes Are Not Inflation Relative-price changes, like inflation, can cause price pressure in an economy. ... A rising relative price indicates that demand is outstripping supply (or that supply is falling behind demand), while a falling relative price denotes just the opposite.
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Deflation is worse than inflation because interest rates can only be lowered to zero. Once rates have hit zero, central banks must use other tools. But as long as businesses and people feel less wealthy, they spend less, reducing demand further.