You will find out Difference Between Inflation And Deflation.Inflation and deflation , two concepts that we often hear in the press, radio and television and that, however, are not clear to everyone. Both terms are related to the price index , a key indicator of a country’s economy.
10 Difference Between Inflation And Deflation.
Inflation:
“Inflation is a state in which the value of money is falling and prices are rising”.
Deflation:
“Deflation is a state in which the value of money is rising and prices are falling”.
Inflation Deflation
- Price Level:
During inflation the price During deflation the price level level increases. decreases.
- Value of Money:
Due to rise in price level, Due to fall in price level, the value the value of money decreases.of money increases.
- Purchasing Power:
Due to decrease in the Due to increase in the value of
value of money, the purchasing money, the purchasing power of
power of the people also decreases. the people also increases.
- Effect on Savings:
I he people suffers loss on People try to maximize their
the savings during inflation due savings during deflation due to
decicase in value of money. increase in the value of money.
5 Demand for Goods:
During inflation, the price During deflation, lower price level level of goods increases which makes the goods cheaper which ।(duces the demand for goods at increases the demand for goods at
national and international level. national and international level.
6 .Effect on Consumers:
Increase in price level During deflation, the purchasing
also increases the cost of living. power of people increases and the
I hie to this the consumers suffer consumers buy more goods with loss. their income.
- Effect on Government:
inflation increases the During deflation, the investment, government expenditures which price and employment level fall icsults in economic crises and which creates problems for political unrest. government in the formulation of
economic policies.
8 Salaries and Wages:
During inflation, salaries During deflation, the purchasing and wages do not increase in the power of money increases which same proportion as that of prices. provides benefit to the people to some extent.
- Effect on Business:
During inflation, producers, During deflation the businessmen
wholesalers and retailers earn suffer loss due to fall in price
more profits due to increase in level.
price level.
10 Effect on Debtors:
When prices increase and In case of deflation the debtors are the value of money decrease, the not benefited.
debtors get benefit from the situation.
- Effects on Creditors:
Creditors suffer loss Creditors get benefit during
during inflation. deflation.
- Effect on Agriculturists:
During inflation, the During deflation, the farmers are
prices of agricultural products less benefited as the prices of their
increase and farmers get higher output decrease.
profits.
- Effect on Taxpayers:
In inflation the taxpayers During deflation the taxpayers
gain benefit as ’ they pay tax suffer loss as they pay high value
having low value due to high due to low prices.
prices.
- Level of Inves^nent:
When prices are rising the During deflation, the price level
business and economic activities falls which reduces the profit
increase which stimulates margin and level of investment investment. falls.
15 Central Bank Policy:
During inflation, the Credit expansion policy is adopted
central bank adopts credit by the central bank during
contraction policy. deflation.