Inflation & Deflation Explained

If you’re interested in learning about the economic concepts of inflation and deflation then I recommend you read the following two articles at Economonkey:

These articles discuss how inflation is measured and how it has affected the UK economy in the past few years, and how deflation might soon begin to affect us.

If inflation is a general increase in prices and/or wages driven by the greater availability of money (whether ‘real’ money or debt), then deflation is a general decrease in prices and/or wages driven by the much reduced availability of money. This is widely considered to be a bad thing.

The threat of deflation is particularly scary, as it prevents investment and spending (subsequently people lose their jobs), and those in debt generally find it harder to pay it off.

So what can be done? There are some suggestions that the Bank of England will start printing more money to distribute, which in effect causes inflation, but I’m not sure how this would be given out. I guess this could be in a similar way to the US Economic Stimulus Act, in which the US government gave tax rebates to lower income families to help prop up the economy.

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