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Chapter 9: Q 18. (page 243)

What is deflation?

Short Answer

Expert verified

It is just the opposite of inflation.

Step by step solution

01

Step 1. Introduction

When the price level in the economy increases because of several reasons such as increase in money supply,it is known as inflation.

02

Step 2. Explanation

Deflation is just the antonym of inflation. as inflation is the increase in average prices and deflation is the decrease in average prices. it is to be noted that in deflation consumers are benefitted.

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.

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Most popular questions from this chapter

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

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.

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?

Why does the “quality/new goods bias” arise if we

calculate the inflation rate based on a fixed basket of goods?

A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3%, what would likely happen to a homeowner with an adjustable-rate mortgage?
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