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We were discussing inflation in my business studies class the other day and my teacher couldn't answer this question, so I thought I might post it here. What would you say is the answer to this question and why?
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#2
Deflation, in the long term, is a major headache. It can cause economic stagnation, higher unemployment and increase the burden of debt. Japan is the classic case to look at.
But hyperinflation is a lot worse, just look at Argentina, Zimbabwe and the Weimar Republic.
But hyperinflation is a lot worse, just look at Argentina, Zimbabwe and the Weimar Republic.
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#4
(Original post by ElementaryMyDear)
We were discussing inflation in my business studies class the other day and my teacher couldn't answer this question, so I thought I might post it here. What would you say is the answer to this question and why?
We were discussing inflation in my business studies class the other day and my teacher couldn't answer this question, so I thought I might post it here. What would you say is the answer to this question and why?
I've written notes on both the advantages and disadvantages of inflation and deflation.
www.petragrade.com/Inflation
www.petragrade.com/Deflation
Perhaps these notes can help you (or anyone else) answer your question
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#5
Hyperinflation is a lot worse than relatively weak deflation - something we might experience quite soon.
Didn't Zimbabwe have inflation of 80 billion percent or something crazy?
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Didn't Zimbabwe have inflation of 80 billion percent or something crazy?
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#6
Let me put it to you this way.. the Austrians wrote a book about hyperinflation released in 1923... it's called 'When money dies'.
Deflation at the extreme is bad because it reduces demand, investment and wages but humans always need to eat or use transport so there's a floor to the damage it can do. Hyperinflation on the other hand would make anybody with a knowledge of economics crap themselves were it to occur, when the pound in your pocket can't buy the loaf of bread that it bought this morning people will lose all faith in money and it will become useless as its value collapses, it has dreadful social implications, not least the likely collapse of the government.
The deflation the UK will see soon is mainly related to lower import costs of food and energy. With low wage growth and people feeling a bit squeezed it's more likely to act in a similar way to a short term tax cut than have any real effect on consumption/saving.
Deflation at the extreme is bad because it reduces demand, investment and wages but humans always need to eat or use transport so there's a floor to the damage it can do. Hyperinflation on the other hand would make anybody with a knowledge of economics crap themselves were it to occur, when the pound in your pocket can't buy the loaf of bread that it bought this morning people will lose all faith in money and it will become useless as its value collapses, it has dreadful social implications, not least the likely collapse of the government.
The deflation the UK will see soon is mainly related to lower import costs of food and energy. With low wage growth and people feeling a bit squeezed it's more likely to act in a similar way to a short term tax cut than have any real effect on consumption/saving.
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