DEFLETION
it's linked to downturn and recession
prices and demand of goods decrease and buisness confidence stumble
firms are cautious in making investments, because the falling in prices may reduce profit
consumers postpone purchasing or spending,
because they think that prices will be lower in the future
the supply of goods and services is higher than the deman
it's the decreasing in the price level
INFLATION
Effects
to firms
Increasing in business costs and
dampening confidence
buisness costs increases and firms are insecure
Trade balance ( exports), reduction in
net exports
Inflation makes national goods more expensive for foreigner buyers, as consequence national goods may lose their competitive edge and exports may fall. But also inflation makes foreign imported goods more expensive for national buyers
to consumers
Difference between nominal and real
interest rate
if the rate of inflation exceeds the nominal nterest rate, the real interest would result negative
The reduction of value of saving
Savers reduces the value of
money saved
The wages/prices spiral
prices go up, so workers ask for higher
wages but wages are costs of production, so costs of production rise and, as a consequence, goods’ prices rise again
the reduction of the purchasing power of money
Causes
money supply
if the level of money in circulation increase, inflation rises and the purchasing power of money go down
cost-push inflation
cost of production rise, supply decreases and price rise.
demand pull inflation
he demand of goods exceeds its supply
it's the rising in the general level of prices
