Inflation & Deflation: Meaning, Challenges, Causes

Inflation and deflation are two of the most important economics phenomena of the present century and their scope are so wide that no country in the world has not lost its effects and results. What can describe inflation and deflation? Inflation means increasing the overall price level, but each an increase in price cannot be called inflation, inflation means a steady increase in the general level of prices or Inflation is moving above the average price level. In contrast, it is a negative or a fall in prices which is defined as a downward movement in the price range.

The boundary between inflation and price reductions is the price stability. For example, to understand how inflation works, imagine a world in which there are only two products: oranges that are pulled out of trees and paper money that is printed by the government. If a drought occurs in one year and the orange is scarce, it is expected that the price of oranges will increase, so that more money is needed for a little orange.

Get quality help now

KarrieWrites

Verified writer

Proficient in: Economic Recession

5 (339)

“ KarrieWrites did such a phenomenal job on this assignment! He completed it prior to its deadline and was thorough and informative. ”

+84 relevant experts are online

Hire writer

In contrast, if orange production is to record, it is expected to fall, so that orange vendors will have to cut prices. The two scenarios were inflation and price reductions, respectively.

In the real world of inflation and falling prices, the changes in the average price of all goods and services are not just the price of a commodity. I think that was the best example to understand the concept of inflation. The recession or deflation is a situation in which the economic activity of society has been plunged for more than a few months for a long time.

The recession affects a variety of sectors: industrial production, job creation, construction and stock exchange. One of the main reasons for recession are the lack of demand for supply. When people in a community reduce their demand for goods and services firms, the producer must reduce his production to avoid losses. As we cannot call the multiplicity of interim goods an inflation, we cannot call the economic recession in a temporary time. Each market has its own conditions and may be in some cases slump, but the continuation of this decline will lead to recession. For example, The global recession in 2008-2009 brought a lot of attention to the risk investment strategies used by large financial institutions along with the global nature of the financial system. what is the solution? Under conditions of recession, governments can, by applying appropriate monetary and fiscal policies stimulate investment and demand in society. With increasing consumption and investment, the government can shake demand. Also, by changing the interest rate (due to the inverse relationship between interest and investment), by adopting a proper monetary policy, the incentive to invest in people will increase.

In the short run, monetary policy influences inflation and the economy wide demand for goods and services and, therefore, the demand for the employees who produce those goods and services primarily through its influence on the financial conditions facing households and firms. Undoubtedly, salary is one of the most important measures to motivate employees The organization is used. Because it serves as one of the essential tools for addressing the needs in the hierarchy of needs Human is Therefore, salary is the most important issue that has attracted the attention of employees to the way of working life. Increasing rights and salaries is believed to increase inflation in turn. The high rate of inflation hurts long-term capital formation, because it completely undermines savings, and This means that it will decrease in the long run, because prices are less tolerable. On the contrary, inflation does not tend to center on some of the phenomena and has a strong and intense tendency to intensify and increase and this is in fact due to the mentality of the people of a society towards inflation. Inflation is a result of a situation where the general level of prices is uncontrollably or irrelevant and is constantly increasing over time. According by the national bureau of economic research by Jose Maria Barrero in 2017, “what drives short- versus long-run implied volatility at the firm level.

Examining four factors that vary at the firm-quarter level - the price of oil, exchange rates, 2 policy uncertainty. and CEO turnover - we find that oil-price uncertainty appears to play a particularly important role in shaping short-run uncertainty, reflecting perhaps that oil prices are a mean-reverting stochastic process. In contrast, policy uncertainty has a larger impact on long-run uncertainty, which is perhaps not very surprising given the longer-run focus of many of the major policy debates of recent years, including discussions about the US debt ceiling, health-care, immigration reform and involvement in foreign wars. Finally, we find currencies and CEO turnover appear to impact both short-run and long- run uncertainty about equally.” There are two basic points in the definition above: Rising prices are unbalanced. In an economy where the increase in prices is equal to the average increase in productivity or the final product, wages also increase equally. So that the real wage rate in the employer's balance of payments stays the same (Wp= Wm/p).

Although prices have gone up, there is no inflation. In this case, the increase in the general level of prices is considered proportional. Therefore, the pressure on prices may be neutralized in certain circumstances by raising the general level that results from the productivity or productivity of manpower. In this situation, inflation does not exist in its real sense, and as a result, the real income of individuals is not negatively affected. But in the above relation, the relative increase in prices were higher than the increase in the final product of labor or the average productivity, and the rate of wage-earning it increased, inflation was due to its principle, because the real wage declined and in the state of inadequacy, the balance was placed in a way that is less than the finished product surfaces. If the rise in the wage level of the economy increases, that is, if the final return on labor is constant, or if the relative increase in the wage bill is higher than the increase in the final product, prices will increase, and the result will be inflation.

In my opinion, it is so tough to trade-off between higher prices fewer jobs because they come together and if and relate to each other. If we increase prices our demand from people will be less and that will impact on companies and it make them to lay off some of their employees. It same for having less jobs, if we cut our jobs the prices will be higher. I cannot accept neither, increasing or fewer jobs both, but if I must choose one of them, I accept to increasing prices than fewer jobs because at least people can find job and make money if prices our higher. If we have more jobs at least they can have more than one job to afford their life instead increasing prices. The reality is that the current world is during a global danger, and this is the same as global inflation, which is increasingly being added to its realm and dimensions.