What is the long term impact on the economy if inflation risen or fallen?

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MelonKuma
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If inflation increases:
  • The purchasing parity power would increase
  • However, if too high - this would result in hyperinflation and so the economy would be spiraling out of control and the cost of money would be worthless.



If inflation decreases:
  • This will lead to deflation when the economy is not growing
  • And which could also lead to a recession where there is a high rate of unemployment so less money is being earned.
  • Therefore, the AS and AD curve would both shift inwards as there is less demand in the economy, this lack of demand would lead to excess supply which would be reduced by the closure of businesses causing unemployment.


  • Unemployment would reduce the supply of labor in the economy and people may be willing to work for less.



Is there anything I am missing out or need correcting on?
Thank you!
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gr8wizard10
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Don't confuse inflation decreasing with deflation.

Inflation decrease = Inflation at a slower rate
Deflation = A decrease in the general price level

I think you'd want to read this : http://tutor2u.net/economics/revisio...inflation.html
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