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Inflation and Deflation: Example Problem

Request assistance with graduate level research: MS word document, with APA citing in text and references, addressing the following issues:

Is inflation or deflation more likely in the next two years?

Take a clear stand on this issue, and support the answer with solid arguments in favor of the answer.

Solution Preview

Inflation is an economic term, which can be defined as the measure of the change in the price of goods and services in a particular economy. In an economy, inflation can be described as the rise in the prices of goods and services from the general level over a period of time. The increase in the price of goods and services causes the decrease in the purchasing power of individuals as each unit of currency buys less amount of products and services. So, the inflation can also be defined as the reduction in the purchasing power of money (Baumol & Blinder, 2008). The inflation in a country or in an economy is measured through the inflation rate.

Deflation is the other term of the economy, which can be explained as the decrease in the price of goods and services from its general level. It is the position, which occurs when the inflation falls below zero. On the other hand it can be described as the negative inflation rate. The deflation in the economy causes an increase in the real value of money as individual may buy more volume of goods and services from the same amount of money. Generally this situation occurs due to decrease in the supply of money or credit (McConnell & Brue, 2004). The deflation causes an increase in unemployment rate in the country due to less demand of labor.

There are several cyclical and secular factors, which determine the future aspects of the economy in terms of inflation and deflation rate. Currently most of the countries in world are facing the deflation, which is a major threat for all those economies. But because of the some environmental factors, government policies, the inflation would be a major threat over the next two years for the economy. There are various factors, which may impose inflationary situation in the country. In order to eliminate the deflation in the economy the monetary policy of the US would support to the increase in money supply, which may cause the inflation in the country. Following are the reasons for inflation in US over ...

Solution Summary

This solution discusses inflation and deflation.

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