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

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If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?

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