Inflation Is The Rise Of Priced Goods And The Fall Of...

ECON-50-16209 SU 2016 [ Erica Vergara, ID#0678025 ] Essay 1: Question 1: Inflation is the rise of priced goods and the fall in value of money. Deflation is when prices of good and services fall. We are concerned about both because they can harm the economy. In the video, â€Å"Inflation or Deflation?† by Merle Hazard, he asks if the banks will the central bank get traction soon or will it lose its grip? In regards to being in a recession, Hazard is questioning if the banks will be able to control what is happening or will it crash which happened in the Great Depression. He also continues to describe how the government prints more money to compensate for the prices which is inflation. Hazard also asks if the dollars in his mattress, will buy†¦show more content†¦This can be caused by wage inflation. Several people assume since deflation is the opposite of inflation it is better. However, deflation can also harm the economy. A huge amount of unemployment is shown in deflation. An economic deflation is an indication that this economy is diminishing. The United States experienced deflation before. According to Kalen Smith, â€Å"Massive deflation helped turn a recession into the Great Depression. As unemployment rose, demand for goods and services fell† (http://www.moneycrashers.com/deflation-definition-causes-effects/). There are several factors that cause deflation. Some factors are changes in structures of capital markets, decreased currency supply, and decreased government or consumer spending. As a result, deflation can cause decreased wages, decreased business revenues and reduced value in investments. Overall, deflation slows down economic growth in economies. The government regulates the economy to control inflation and deflation. By calculating the Gross Domestic Product Deflator or Consumer Product Index, one can check for inflation. The Gross Domestic Product Deflator compares the current level of prices to the level prices of the base year or previous years. By using this, economists are able to calculate the inflation rate (text, p. 5-4b). This is how