Deflation,Dis Inflation!How deflation affects Economy -Basic Concepts Of Economy Part 2

Lets continue the next part ,that is disinflation and deflation.There is some difference between deflation and dis inflation.lets see that first.

What is dis inflation ?

Slow down in rate of increase of general price level of goods and services through out the country is called dis inflation.Dis inflation is the decrease in the rate of inflation.

Now ,what is deflation ?

When the inflation rate falls below 0%,then it is called deflation.In simple terms ,negative inflation is called as deflation.

Hope you understand the difference.

For example,if price is slowing down for a product from 150 rs to 140 ,then 130 etc ,it is termed as dis inflation ie slowing down the inflation.

If %  goes negative ,then deflation occur.

Dis inflation is not really a problem but deflation is really problem for an economy as it kills the total demand in the economy.For example if a product price is slowing down and becoming very cheap ,them its demand also will fall down .

Deflation Process !

Price slowing down (Dis inflation )===>Slowing rate become huge and inflation become negative (Deflation)===>This cause very less demand for products ===>No profit as demand is less and product cost is very less===>People will also tend to buy less as product become very cheap===>Now ,the company who produced that product will not look for further investment until price rise===>This cause total economy slow down ===>Disruption in the economy.

In next chapter we can see the relation between deflation,recession and depression and how it affects the economy overall.


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