Why Deflation Is Worse than Inflation

-

Why Deflation Is Worse than Inflation?

First of all we should know what is Inflation and what is Deflation.

Inflation


Inflation is sustained increase in the general price level of goods and services in an economy over a period of time. Purchasing power of money is reduced, as we can purchase fewer goods in each unit of currency.

Deflation


Deflation is a decrease in the general price level of goods and services. Deflation occurs when the Inflation rate falls below 0% (a negative inflation rate).

Why Deflation Is Worse than Inflation

Deflation is worse because interest rates can only be lowered to zero. As businesses and people feel less wealthy, they spend less, reducing demand further. Prices drop in response, giving companies less profit. 
Once people expect price declines, they delay purchases as long as possible. They know the longer they wait, the lower the price will be. This further decreases demand, causing businesses to slash prices even more. It is a vicious, downward spiral.

Comments

Post a Comment

Popular posts from this blog

What is GDP and GNP and Methods to calculate it

-
Image
What is GDP and GNP and Methods to Calculate it In this article we will know what is GDP and how it is calculated. In the next parts of this article we will discuss about how NNP, NDP, GNP, GDP, NNPFC, NNPMP are different from each other. We will also discuss what the GDP at constant price and GDP at current price are. By the way, all the notes related to Economics are being added on this page, which you cannot afford to miss. By the way, you can find all the notes of Economics on this page. Gross Domestic Product  All those things which are produced inside the country or within the country economic value. Here, Domestic means within the country and all things means both goods and services. Gross National Product (GNP) All those things which are produced inside the country PLUS income which have come from outside, their economic value. Suppose, a person named 'A' brought the money abroad to America, to our country India = counted in GNP. On the other hand, '...
Read more

Difference between Gross Domestic Product at Market Price(MP) and Gross Domestic Product at Factor Cost(FC)

-
Difference between Gross Domestic Product at Market Price(MP) and Gross Domestic Product at Factor Cost(FC) In the previous article, we learned what GDP is and how to calculate it. If you didn't seen my previous article then click this link What is GDP and GNP and Methods to calculate it . But at the end of that article, I said to be continued so I am writing this article. You must have read about GDP at market price (MC) and GDP at factor price (FC) many times. But the clean language of economics overwhelms us. I do not know why they serve things in books, but some terms of economics are very easy to understand. Take GDP (mp) and GDP (fc) only. Gross Domestic Product at Market Price It is clear from the name itself that there is talk of market price here. The price / price of a product or service that we buy from the market. Suppose you and we go to the hotel and eat tandoori roti. When the food starts to rise, the waiter comes and stops the bill. Then we both start argu...
Read more

Goods and Services Tax(GST)

-
Image
Goods and Services Tax(GST) The Rajya Sabha passed the Goods and Services Tax(GST) Bill unopposed on 3 August 2016. This bill has already been passed by the Lok Sabha. Thus, this bill has got the approval of both the houses. It is being described as a historical event. Economists say that since 1947, this is a step of India's economic reform. The third meeting of the GST Council was held on 19/10/2016 . In this, it was considered to determine the rate for GST. It was attended by Finance Minister of the Central Government and representatives of various states. No final decision on GST rate could be reached in the meeting. Most states objected to the imposition of additional cess on demerit goods. Now this meeting will again be held on 3-4 November 2016 in which the final decision will be taken on the tax structure of GST. To understand GST (Good and Services Tax) first we have to first understand the tax structure of India. Let's first understand the tax structure o...
Read more