how does inflation primarily differ from deflation.
Inflation and deflation are both economic concepts that describe the movement of prices in an economy, but they differ in terms of the direction and impact on the overall economy.
Inflation refers to a sustained increase in the general price level of goods and services over a period of time. This means that, on average, the prices of goods and services are rising. Inflation erodes the purchasing power of money, meaning that the same amount of money can buy fewer goods and services. Some of the causes of inflation include increased demand, cost-push factors such as rising wages or commodity prices, and monetary factors such as an increase in the money supply.
Deflation, on the other hand, is the opposite of inflation. It refers to a sustained decrease in the general price level, indicating that prices are falling. Deflation leads to an increase in the purchasing power of money since the same amount of money can buy more goods and services. Deflation can be caused by factors such as a decrease in demand, excess capacity in production, or a contraction in the money supply.
So, the primary difference between inflation and deflation lies in the direction of the price movement and the impact on the purchasing power of money. Inflation reduces the value of money, making goods and services more expensive, while deflation increases the value of money by making goods and services cheaper.