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Chapter 22: Q 18 (page 553)

What is deflation?

Short Answer

Expert verified

Continual price fall over time.

Step by step solution

01

Step 1. DEFLATION

Deflation is opposite situation of inflation it is a situation when price level in the economy decreases because of several reasons such as decrease in money supply, it is known as deflation.

02

Step 2. Explanation

Deflation is a decrease in the average prices of goods and services.in the time of deflation the purchasing power of money increases which means we can buy more with the same amount of money as compared to the past.

it is negative inflation because rate of inflation is reduced below 0%.

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Most popular questions from this chapter

Name several forms of indexing in the private and

public sector.

How do economists use a basket of goods and services to measure the price level?

Within 1 or 2 percentage points, what has the U.S. inflation rate been during the last 20 years? Draw a graph to show the data.

Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at Measuring Worth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?

The Consumer Price Index is subject to the substitution bias and the quality/new goods bias. Are the Producer Price Index and the GDP Deflator also subject to these biases? Why or why not?
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