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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

Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of

goods?

Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?

Construct the price index for a “fruit basket” in each year using 2003as the base year.

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