Difference Between Inflation and Deflation

Inflation and deflation are two commonly used terms in Macroeconomics. These two phenomena are experienced by almost every country in the world. It can be said that inflation and deflation are two sides of the same coin.

Inflation is referred to as the situation when the price level of goods and services rise, which leads to decrease in the purchasing power in the economy or in other words decreases the buying power of the money.

Inflation is characterised by two conditions, (1) there is always a steady or sustained rise in the prices of goods and services, which is not seasonal and has a tendency of continuing for a long time (2) the impact is felt across most of the sectors of the economy.

Deflation is the exact opposite of inflation. In this condition, the price level of goods and services decrease exponentially which results in an increase of the buying power of the money. In other words, in case of deflation, the people in an economy are able to purchase more quantities of products with limited amounts of money.

Let us look at some of the points of difference between inflation and deflation.

Inflation

Deflation

Definition

Inflation is defined as the increase in the price levels of goods and services in an economy

Deflation is termed as the decrease in price levels of goods and services in an economy

Impact on demand

Demand for products and services increase in inflation

Demand for products and services decrease in deflation.

Impact on National Income

No impact on national income

National income declines as a result of deflation

Consequences seen

Distribution of income is not equal as a result of inflation

There is a rise in level of unemployment in the nation as a result of deflation

Is it beneficial?

Moderate levels of inflation is considered good for the economy

Calculated based on only the amount that is availed

Impact on Purchasing Power of Money

Decreases the purchasing power of money

Increases the purchasing power of money

This article was all about the topic of Difference Between Inflation and Deflation, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

Leave a Comment

Your Mobile number and Email id will not be published. Required fields are marked *

*

*