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Inflation, Stagflation and Deflation
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The content of this video is my own opinions and is for information purposes only. It is not intended as a substitute for professional financial advice. It is only intended to provide education about investments….(read more)
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Inflation, Stagflation, and Deflation: Understanding the Dynamics
Economic stability is crucial for the growth and development of any nation. However, the complex nature of the global economy means that fluctuations and changes are inevitable. Three key economic phenomena that economists often study and analyze are inflation, stagflation, and deflation. Understanding these concepts is important for policymakers, businesses, and individuals as they have a significant impact on various aspects of the economy.
Let’s start with inflation, which is perhaps the most commonly discussed economic term. Inflation refers to the continuous rise in the general price level of goods and services. When the purchasing power of a currency decreases, people can buy less with the same amount of money. The effects of inflation can be felt throughout the economy, such as increased production costs, reduced savings value, and a decrease in consumer purchasing power. Central banks typically aim to maintain a moderate level of inflation, as a slight increase can encourage spending and investment. However, high or hyperinflation can lead to economic instability and social unrest.
On the other end of the spectrum, we have deflation, which is the opposite of inflation. It occurs when prices start to fall, often caused by a decrease in demand or excessive production capacity. While on the surface, deflation might seem beneficial as people can buy more with less money, its consequences can be severe. Deflation discourages spending and investment, as people anticipate further price decreases. This can lead to a decline in aggregate demand, lower production, and ultimately, economic recession or depression. Central banks employ various monetary policy tools to counter deflation by stimulating spending and promoting economic activity.
Situated between inflation and deflation is stagflation, a term coined during the economic downturns of the 1970s. Stagflation refers to a combination of stagnant economic growth, high unemployment rates, and inflation. This phenomenon often arises from supply-side shocks such as sharp increases in oil prices or other essential commodities. Stagflation poses a significant challenge for economic policymakers, as traditional measures may not be effective. In this scenario, higher interest rates to control inflation might worsen unemployment, while expansionary monetary policies to reduce unemployment might exacerbate inflation. Stagflation can cause a period of economic instability, as it disrupts the traditional expectations about the relationship between inflation and unemployment.
Understanding inflation, stagflation, and deflation is essential for policymakers and individuals alike. Governments and central banks need to adopt appropriate monetary and fiscal policies to maintain stable economic conditions. Individuals can adjust their investment strategies, savings, and consumption patterns based on the prevailing economic environment. It is crucial to remain informed about these economic phenomena in order to make well-informed decisions that can help mitigate any negative impacts.
In conclusion, inflation, stagflation, and deflation are three significant economic phenomena that have distinct implications for the economy. Inflation erodes purchasing power, deflation discourages spending and investment, while stagflation combines the challenges of both. Policymakers must strike a delicate balance to maintain stable economic conditions, while individuals need to adapt their financial strategies to ride through these economic fluctuations. By understanding the dynamics and implications of these phenomena, we can better navigate the economic landscape and make informed financial decisions.
Inflation*Stagflaion*deflation
தேசம் adulteration நாசம்
நான் disposation
Due to increase in purchasing power (we can buy more product with less money). That means product's price will keep falling. So consumers will decide to not buy or make delay of purchasing. Why because already product's price are falling. So we can wait for some time and it will go down further. It will lead to no demand in market. If there is no demand there is no supply and no production. It will lead to increase in unemployment. And when we are selling very low price there will be no profit margin. If there is no margin, investors will not invest money in new project. Investment is very crucial for long term countries economic growth rate. It will affect. Debt burden will increase. Why because already I have no cash flow. How I can repay the amount. If deflation happened after borrowing then it will make the situation even more worse. Because same interest rate we have to repay. Collateral value will be decreased. It will make trouble for lenders. Government also will face so many difficulty to fight with delation. That's why government is keeping moderate inflation. Inflation can be easily controlled than deflation. So monetary authority always focusing on cash flow of country and controlling inflation and deflation. Based on that they will inject the money by commercial bank and they will control it by repo rate.
Deflation impacts producers and manufacturers
If product price reduced then, company and vendor are not making much profit ……if they are not earning more profit means…..tax liability will be less……if tax liability is less government received less money in name of tax ……this leads to reduction in GDP
Deflation will decrease currency value
If Inflation start in any country ,less production , less work to reduce employee's so many people are affected
For Buyer, Deflation may look like beneficial… But as a Invester/Seller, Deflation may impact in their revenue/profit.. Deflation may reduce the consumer buying interest because they may think that price may decrease further and they will wait for further decrease in price and become stagnant…
SPEAK ENGLISH!!!!!!!!
Deflation leads to slow growth or even negative growth as demand is crushed
Production, Consumer confidence decrease,Jobloss increase hoarding money
Deflation will slowly cause inflation in turn and will become a headache
Quantity demand will increase
It will lead to excessive buying of goods and service which leads to the increase in the price of goods and service , which again leads to inflation…..to reduce the inflation…one common way is used it is increasing the *Repo rate.
Suspect deflation may lead to less production of product,loss of jobs in that sector and company may not able to pay their debt’s and investment in that sector may go down
Demand increase agum next product price increase agum…
When actual aggregate demand is less than expected aggregate demand, its called deflation. Here prices of the commodity decreases because purchasing power of people also decreases.money supply will also be less in the market. Ithu 12th economics syllabus sir.
Company profit margin goes down and analyst forecast less revenue and stock price of the company and stock market goes down .
Increasing demand..
Deflation will result in less supply, job losses and recession
Extreme Loss For Manufacturer Eg: Agriculture
Demand increase and scarcity for the product
Currently is it inflation or stagflation?
Producer of goods won't get profit. Interest rate will decrease.
It will increase purchasing power which will lead into recession
In deflation, the price of goods and services keeps coming down. This indicates lack of demand. The consumer sentiment is low, people of scared of upcoming economic downturn and are saving. Consequently, it discourages business from spending and results in decreasing growth and overall productivity goes down!!
Deflation is good only for a short time when initial inflation is very high and the market is balancing. Persistent deflation for many years is always bad as this means there's not much incentives for business growth. For example, Deflation in japan throughout 1990's killed Japanese innovation which impacts the country till date!
Deflationary situation means there is excessive supply over demand
This will lead to reduced economic activity
Now in turn will decrease the disposable income then lead to stagflation
Deflation will impact economic growth as people will stop or postpone their spending/purchases
விலைவாசி குறைந்தால் அனைத்து தொழில்களும் ஒன்றன்பின் ஒன்றாக பாதிப்படையும்.
எந்த தொழிலையும் லாபகரமாக நடத்த முடியாது.
தொழிற்சாலைகள் மூடப்படும்.
வேலைவாய்ப்பு இல்லாமல் போகும். .
பொருளாதார தேக்க நிலை (recession) உருவாகும்.
Hi Sir, may be due to Deflation people might stop spending money hoping the price of the same commodity might still get cheaper over time which in turn affects GDP.
Companies with less debt tend to accumulate more cash in the eyes of investors. Similarly, the cash balance of companies with high debt decreases.