INFLATION

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DEFLETION

it's linked to downturn and recession

prices and demand of goods decrease and buisness confidence stumble

firms are cautious in making investments, because the falling in prices may reduce profit

consumers postpone purchasing or spending, because they think that prices will be lower in the future

the supply of goods and services is higher than the deman

it's the decreasing in the price level

INFLATION

Effects

to firms

Increasing in business costs and dampening confidence

buisness costs increases and firms are insecure

Trade balance ( exports), reduction in net exports

Inflation makes national goods more expensive for foreigner buyers, as consequence national goods may lose their competitive edge and exports may fall. But also inflation makes foreign imported goods more expensive for national buyers

to consumers

Difference between nominal and real interest rate

if the rate of inflation exceeds the nominal nterest rate, the real interest would result negative

The reduction of value of saving

Savers reduces the value of money saved

The wages/prices spiral

prices go up, so workers ask for higher wages but wages are costs of production, so costs of production rise and, as a consequence, goods’ prices rise again

the reduction of the purchasing power of money

Causes

money supply

if the level of money in circulation increase, inflation rises and the purchasing power of money go down

cost-push inflation

cost of production rise, supply decreases and price rise.

demand pull inflation

he demand of goods exceeds its supply

it's the rising in the general level of prices