What is deflation

In addition to the inflation, in the economy we find stagflation and deflation. What is deflation then? We propose a definition of deflation that serves for comprehension this concept connected to the economic concepts of stagflation and inflation, which we will check soon.

The deflation happens when they lower the prices of the goods and services of a given economy. Since we see, it differs from the inflation for going in the opposite direction, and his appearance causes fear in the merchants because the demand of goods and services is minor, leading to the economies to taking drastic measures, as Japan was exemplifying recently.

Again the law of supply and the demand is implicit behind this concept, and when the demand falls down, the prices diminish. With it, the merchants must sell his products and services at a price with which to settle the costs, since this is the average only one of clients attract.

This is a clear vicious circle in which the goods consumers decide to preserve his money because they will be able to acquire cheaper goods in tomorrow. Since we know, when in the economy of a country it does not circulate money, the things are complicated, and a long deflation can only lead to a destruction of the economy.

To fight the deflation two types of politics can take: the monetary ones and the district attorneys. The monetary politics includes for example to lower the price of the money, this way to do more circular money and to encourage the consumption. The fiscal politics implies an increase of the public expenditure, reducing the taxes and increasing the transferences.

It costs to emphasize that it is not necessary to confuse deflation with deflation. The last one is immersed in the logic of the inflation, and consists of a deceleration of the growth of the prices, which keep on growing but to a rhythm minor than earlier.