Inflation and Deflation

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karpicha
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Hi! Could you explain me how inflation and deflation impacts on economy ?
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username1628823
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(Original post by karpicha)
Hi! Could you explain me how inflation and deflation impacts on economy ?
Are you looking for A-Level or university-level help? If it's the latter, I can't help much.
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karpicha
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Im just looking an explanation for that question in few sentences to show me how it impacts :P
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truthteller0110
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(Original post by karpicha)
Im just looking an explanation for that question in few sentences to show me how it impacts :P
Inflation means an increase in prices so standard of living falls as people can afford fewer goods. It makes firms less competitive as their prices go up which could mean fall in exports. Inflation decreases the value of money so sustained inflation can cause a depreciation in the value of the pound however when the value of money falls the value of real debt also falls so debt becomes easier to pay off.

Deflation in the short term actually increases standard of living as goods become cheaper. But sustained deflation will mean that consumers delay their purchases as they expect prices to fall even more in the future. This delay in purchases mean less consumption and so economic growth falls. Firms may become more competitive as cost of production falls. Debt becomes more expensive for the govt.
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