Why are inflation and deflation considered to be economic problems?

By Ritesh|Updated : September 4th, 2022

Inflation measures how fast the goods price is rising quantitatively. Deflation happens when there are many goods present or when there is no sufficient money in circulation to purchase the goods. So, the price of services and goods falls.

Concept of Inflation and Deflation

  • Inflation occurs by high demand for services and goods, which decreases availability. Inventory can be reduced for reasons like; a natural calamity destroying food crops, a real estate boom that can deplete construction supplies, etc.
  • The measure of inflation is the Consumer Price Index (CPI) growth rate. It is a theoretical goods basket, which includes consumer services and goods, transportation, and medical care costs.
  • The government tracks the price of goods and services in a basket to understand the power of purchasing using the US dollar.
  • Deflation happens when there are many goods present or when there is no sufficient money in circulation to purchase the goods. So, the price of services and goods falls.

Summary:

Why are inflation and deflation considered to be economic problems?

Inflation and deflation are considered to be economic problems as it will reduce investments, production, and unemployment. A high inflation rate is an economic problem as the demand for services and goods will decrease drastically, and people's buying ability will decrease massively.

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