what are the influences by the inflation and deflation?
- JerryLv 61 十年前最愛解答
In mainstream economics, inflation is a rise in the general level of prices, as measured against some baseline of purchasing power.
The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. In general, mainstream economists divide into two camps: those who believe that monetary effects dominate all others in setting the rate of inflation, or broadly speaking, monetarists, and those who believe that the interaction of money, interest and output dominate over other effects, or broadly speaking Keynesians.
Related terms include: deflation, a general falling level of prices, disinflation, the reduction of the rate of inflation, hyper-inflation, an out of control inflationary spiral, and reflation, which is an attempt to raise prices to counter act deflationary pressures.
Deflation is a decrease in the general price level, over a period of time. Deflation is the opposite of inflation. The term is also used to refer to a decrease in the size of the money supply. During deflation the demand for liquidity goes up, in preference to goods or interest. During deflation the purchasing power of money increases.
Effects of deflation
In mainstream economic theory, deflation is a general reduction in the level of prices, or of the prices of an entire kind of asset or commodity. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices. In the IS/LM model this is caused by a shift in the supply and demand curve for goods and interest, particularly a fall in the aggregate level of demand. That is, there is a fall in how much the whole economy is willing to buy of, and therefore in the going (or, effective) price for, goods. Since this idles capacity (while demand may adjust upwards as the price falls, there is inevitably a lag), investment also falls, leading to further reductions in aggregate demand (e.g., as money becomes dearer). This is the so-called deflationary spiral. A solution to falling aggregate demand is monetary or fiscal stimulus. Either the central bank expands the money supply (e.g., by lowering the interest charged on interbank loans, including those from the CB, and/or by buying 'liquid' securities, e.g., repos), or the fiscal authority increases demand (e.g., by removing regulations resistant to 'free' trade and/or reducing taxes).
In monetarists theory, deflation is defined in terms of a rise in the demand for money, based on the quantity of money available. The Quantity Theory of Money is founded on the Fisher equation (also called the equation of exchange),
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