Scribd
Upload
751 views13 pages

Inflation, Deflation and Stagflation

This document discusses various macroeconomic concepts including inflation, deflation, reflation, disinflation, and stagflation. It defines each term and outlines their key causes and measures to address them. Deflation is defined as a falling price level that increases the value of money. Its causes include decreased private investment, unfavorable trade balances, and higher interest rates set by central banks. Governments aim to control deflation through increased spending, tax cuts, and boosting investment and consumption. Stagflation is high inflation combined with economic stagnation, caused by reduced aggregate supply due to factors like higher taxes and costs.

Uploaded by

Steeeeeeeeph
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
751 views13 pages

Inflation, Deflation and Stagflation

This document discusses various macroeconomic concepts including inflation, deflation, reflation, disinflation, and stagflation. It defines each term and outlines their key causes and measures to address them. Deflation is defined as a falling price level that increases the value of money. Its causes include decreased private investment, unfavorable trade balances, and higher interest rates set by central banks. Governments aim to control deflation through increased spending, tax cuts, and boosting investment and consumption. Stagflation is high inflation combined with economic stagnation, caused by reduced aggregate supply due to factors like higher taxes and costs.

Uploaded by

Steeeeeeeeph
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 13

Inflation, Deflation

and Stagflation

CH # 5

LOGO

Terms to know

1
2
3
4

Inflation, Sources of inflation and its Remedies


Deflation, Causes of deflation, Measure to
control deflation
Reflation and Disinflation
Stagflation, Causes of stagflation, Measure to
control stagflation

Deflation
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.

LOGO

Causes of Deflation:
Deflationary situation may occur due to the
following terms;
Private investment
Persistent unfavorable balance of payments
Continued Govt.-budgetary surpluses
Increase in the total output
To rise the discount rate by the Central Bank
By selling securities

LOGO

Measure to control deflation

LOGO

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
Private consumption
increase the living standard of the people

Reflation

LOGO

Reflation is a state of a moderately rising


general prices when efforts are made by the
Govt. to lift the economy out of depression.
This upward rising in general prices is
characterized by expanding production, rising
consumers expenditures, the usage of machinery
and increasing profit.

Disinflation

LOGO

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.

LOGO

Diagram
Diagrammatical representation:
Economic Activity

Inflation
Disinflation

Full Employment
Reflation

Deflation

Depression

Time (years)

Stagflation
In the words of Michael swan;
Stagflation can be described as a contraction or

LOGO

stagnation of a nations 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.

Causes of stagflation

LOGO

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

LOGO

Causes of stagflation

the phenomenon of stagflation is illustrated in the


following diagram:
AS
1

Cost/tax/wage

AS

P1
P

AD

L1 L

Employment

Measures to control of stagflation:

LOGO

There are number of measures which can be adopted to slow


down the rise in the general price level and maintain the
general price level.
The should make every effort that minimum wages are not
raised during stagflation.
The increase in money wages should be linked with increase in
productivity.
The personal and business taxes should be reduced to bring
down the costs of goods.
The Govt. itself should take up development programs to create
jobs in the country

By M. Ihsan

End of Ch # 5

You might also like