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Deflation

The document defines and discusses several economic concepts: Deflation is when the value of money is rising or prices are falling. It is the opposite of inflation. Prof. Keynes believed prices could be stabilized more through fiscal than monetary measures. Governments can control deflation through increasing spending, reducing taxes, and stimulating investment. Stagflation is when a country experiences declining output along with rising prices, which can depress the whole economy and increase unemployment. The main cause of stagflation is a reduction in aggregate supply due to factors like lower labor supply, higher taxes, and increased resource costs.

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Pooja Sheoran
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149 views7 pages

Deflation

The document defines and discusses several economic concepts: Deflation is when the value of money is rising or prices are falling. It is the opposite of inflation. Prof. Keynes believed prices could be stabilized more through fiscal than monetary measures. Governments can control deflation through increasing spending, reducing taxes, and stimulating investment. Stagflation is when a country experiences declining output along with rising prices, which can depress the whole economy and increase unemployment. The main cause of stagflation is a reduction in aggregate supply due to factors like lower labor supply, higher taxes, and increased resource costs.

Uploaded by

Pooja Sheoran
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© © All Rights Reserved
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Download as PPT, PDF, TXT or read online on Scribd
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 In the words of Prof.

Crowther;
“Deflation is that state of the economy where the value of
money is rising or prices are falling.”

 If the general level of prices falls and as a result


thereof, the value of money increases, it is called
deflation in economics.

 Deflation is just the opposite of inflation.


 Prof. J. M. Keynes are strongly of the view that
prices can be stabilized more by fiscal measures
than by monetary steps.

 The Govt. adopt the following methods to control


the deflation situation:

◦ Increase public spending


◦ Reducing taxes
◦ Stimulating private investment
◦ increase the living standard of the people
 The process or methods through which prices are
brought down without causing unemployment and
reducing output.

 Disinflation occurs after the level of full


employment is reached in the economy.
 In the words of Michael swan;
“Stagflation can be described as a contraction or stagnation
of a nation’s output accompanied by rise in the price level.”

 Stagflation is a more serious problem than


inflation.

 When the economy is hit by declining output, it


depressed the economy of a whole country with
growing unemployment.
 According to the modern economists, the main
cause of stagflation is the reduction in aggregate
supply.
 The reduction in AS may be due to the following
factors;

◦ Reduction in Labor supply


◦ Increases in taxes
◦ Resources costs
 The phenomenon of stagflation is illustrated in the
following diagram: AS 1
Cost/tax/wage AS

P1
P

AD

L1 L Employment

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