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Differentiate between inflation and deflation
Inflation and deflation are burning issues which almost every country experienced. In simple words inflation is an increase in price of goods and services and decrease in purchasing power. Deflation is where decrease in price of goods and services and increase in purchasing power.
Inflation
This situation occurs due to variability in demand and supply of money. This results over time, the price of goods and services increases. Example is the rise in gold price due to the fall in money value.
Due to inflation the common man has spent more money purchasing goods and services because the general price will have upward lift. In India, inflation is measured with wholesale price index and consumer price index. Rise in public expenditure, deficit financing, agricultural growth is uneven, black marketing etc. are some of causes of inflation
Types
- Demand pull inflation.
- Cost push inflation.
- Stagflation.
- Deflation.
Deflation
This negative inflation occurred due to a fall in money supply and credit in the economy. This results in a downward price shift in the market. Price of goods and services decreases so automatically buying power increases. The main reason for deflation decrease in spending power at micro level and at macro level fall in prices of goods and services.
Types
- Credit deflation
- Debt deflation
- Money supply (deflation)
Differences
The major differences between inflation and deflation are as follows −
| Sr.No | Inflation | Deflation |
|---|---|---|
| 1 | Decrease in value of money in the international markets. | Increase in value of money in the international markets. |
| 2 | Inflation occurs due to increase in general prices. | Deflation is due to decrease in the price level. |
| 3 | National income does not decline. | National income declines. |
| 4 | Fall in gold prices. | Rise in gold prices. |
| 5 | Classified as demand pull, cost push, stagflation and deflation. | Classified as debt, money supply and credit deflations. |
| 6 | Producers will benefit. | Consumers will benefit. |
| 7 | Distribution of income is unequal. | Rise in unemployment. |
| 8 | Symbol of countries economic growth. | Not good for the economy. |
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