deflation

Examples of deflation in the following topics:

• The GDP Deflator

  • The GDP deflator is a price index that measures inflation or deflation in an economy by calculating a ratio of nominal GDP to real GDP.
  • The GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
  • In the U.S., GDP and GDP deflator are calculated by the U.S.
  • Like the Consumer Price Index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.
  • The GDP deflator measures price inflation in an economy.

• Deflation

  • Deflation is a decrease in the general price levels of goods and services.
  • Deflation is a decrease in the general price levels of goods and services.
  • And if there is deflation, $105 next year buys more than $105 does today.
  • Thus, deflation discourages borrowing, and by extension, consumption and investment today.
  • There are several theories about the causes of deflation.

• Limitations of Monetary Policy

  • Limitations of monetary policy include liquidity traps, deflation, and being canceled out by other factors.
  • Deflation is a decrease in the general price level of goods and services.
  • Deflation occurs when the inflation rate falls below 0%.
  • Inflation reduces the real value of money over time; conversely, deflation increases the real value of money.
  • If monetary policy is too contractionary for too long, deflation could set in.

• Defining and Calculating CPI

  • The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
  • Unlike the CPI, the GDP deflator is a measure of price inflation or deflation for a specific base year.
  • The GDP deflator differs from the CPI because it is not based on a fixed basket of goods and services.
  • The GDP deflator "basket" changes from year to year depending on people's consumption and investment patterns.
  • Unlike the CPI, the GDP deflator is not impacted by substitution biases.

• Disinflation

  • Disinflation is not to be confused with deflation, which is a decrease in the general price level.
  • To illustrate the differences between inflation, deflation, and disinflation, consider the following example.
  • This is an example of deflation; the price rise of previous years has reversed itself.

• Macroeconomics

  • Typically, aggregate levels of employment, economic growth, general levels of prices (inflation/deflation), and business fluctuations are examples of topics in macroeconomics.

• Macroeconomics

  • Price stability occurs when prices remain largely stable and there is not rapid inflation or deflation.

• Impacts of Policies and Events on Equilibrium

  • Since inflation causes real wealth to shrink and deflation causes real wealth to increase, the wealth effect of inflation will cause lower demand and the wealth effect of deflation will cause higher demand.

• The Slope of the Aggregate Demand Curve

  • In many ways, what Pigou is putting forward is the idea that downwards spiral on the IS-LM model , as predicted by Keynes due to deflation, will be counterbalanced by an increase in real wages and thus an increase in expenditure.
  • The analysis of interest rates displayed above, through the wealth effect in particular, offsets the negative spiral that could occur as a result of deflation and decreased employment.

• Bernanke Era

  • He emphasized that Congress gave the Fed responsibility for preserving price stability - avoiding inflation and deflation.
  • He also identified seven specific measures for the Fed to reduced deflation.