Deflation refers to a sustained decrease in the general price level of goods and services in an economy over time. It is characterized by negative inflation rates.
Think of deflation as a clearance sale where prices keep dropping day after day. As consumers anticipate further price reductions, they delay purchases which can lead to decreased economic activity.
Disinflation: Disinflation refers to a decrease in the rate of inflation rather than an actual decline in prices. It means that while prices are still rising, they are doing so at a slower pace.
Demand-Pull Inflation: Demand-pull inflation occurs when aggregate demand exceeds aggregate supply leading to upward pressure on prices due to increased consumer spending or government expenditure.
Cost-Push Inflation: Cost-push inflation happens when there is an increase in production costs, such as wages or raw materials, which leads to higher prices for goods and services.
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