What is Inflation and Deflation

In simple terms, what is inflation and what is deflation?

1. Inflation refers to the increase in the overall level of prices
2. Deflation refers to the decrease in the overall level of prices

The overall level of prices in an economy adjusts in order to the bring money supply and money demand into some type of balance. If the central bank increases the supply of money, then will cause the price level to rise. However, persistent growth in the quantity of money supplied will lead to continuing inflation.

A government can also pay for some of its spending by simply printing more money. However, printing too much money can lead to hyperinflation.

In general, to maintain full employment, the quantity of money must rise in order to keep pace with potential of productivity

• However, too much quantity of money causes inflation

What is Inflation - Back to Economics
What is Deflation - Back to SG Learn Online