Another term used to describe Negative Inflation is ________________________.
Counter-Inflation
Deflation
Disinflation
Hyperinflation
None of the Above
The correct answer and explanation is:
The correct answer is Deflation.
Explanation:
Deflation refers to a general decrease in the price levels of goods and services in an economy over a period of time. It is often considered the opposite of inflation, where prices rise. Deflation occurs when there is a reduction in the supply of money or credit, a decrease in consumer demand, or an increase in productivity that leads to lower production costs.
Causes of Deflation:
- Decrease in Consumer Demand: When people spend less, businesses reduce prices to attract buyers.
- Increase in Supply: If goods and services are produced in excess, prices fall due to lower demand.
- Reduction in Money Supply: If central banks or financial institutions limit the availability of money and credit, deflation can occur.
- Technological Advancements: Improved efficiency in production can reduce costs, leading to lower prices.
Effects of Deflation:
- Positive Effects:
- Consumers benefit from lower prices, increasing their purchasing power.
- People on fixed incomes can maintain their standard of living.
- Negative Effects:
- Businesses may struggle due to falling revenues.
- Unemployment can rise as companies cut costs.
- Debt becomes more expensive as the real value of money increases.
Governments and central banks use monetary and fiscal policies to prevent prolonged deflation, as it can lead to economic stagnation or depression. By lowering interest rates and increasing money supply, they aim to stimulate spending and investment.
Now, I will generate an image representing deflation.
Here is an image representing deflation. It visually illustrates the concept with a shrinking shopping cart, downward arrows, and decreasing price tags, symbolizing the economic effects of deflation. Let me know if you need any modifications!
