Difference between Deflation and Disinflation

Deflation and disinflation are the economical conditions when money supply decreases and leads to a fall in the price level. This is why; both of these economic related terms are often confused with each other. In reality, both of them are different from one another.  It is only when one is able to see both deflation and disinflation side by side that she/he is able to realize the differences between them.

According to economics, deflation is defined as a constant fall (decrease) in the price level of the products and services. Disinflation, on the other hand, is basically a slowing of the price increase or a decrease in the inflation rate.

Constant deflation leads to major problems, including mass unemployment and decline in the economical output. Disinflation, meanwhile, does not create such economical problems – it rather puts aside the economy from the disastrous effects of inflation.

Deflation can take place due to certain natural grounds or can be an output of a premeditated policy of the government. Disinflation, on the contrary, is always the direct outcome of a planned policy of the government.

Deflation happens prior to the level of full employment, while disinflation crops up subsequent to the level of complete employment.

The increase in the price level of the products and services can be brought to the standard level with the help of disinflation. Deflation, contrarily, may even decrease the prices even below the standard level. Genuinely, there is no limit to knot the decreasing prices during this scenario.

Instructions

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    Deflation

    Decline in the common price level of goods and services is called as deflation. This situation arises when the inflation (raise in prices and decrease in the buying value of money) falls below 0%. This is a phenomenon when the periodic change in consumer price index (CPI) is negative. Although deflation adds to the actual value of money, but it is not appreciated in today’s modern economics. It actually boosts the real value of debt, aggravating recession period and increasing unemployment rate as a result of closing of businesses.

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    Disinflation

    Disinflation is always good for the economy of a country as it is a “drop off (decrease) in the rate of inflation.” It is basically takes place when a boost in the consumer price level decreases as compared to the previous period of time, when prices were increasing. However, it occurs for a short time period, when an economy will be suffering from recession downturn.

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