Question

What is the differemce between deflation and disinflation? Please provide an example for both.

Answer 1

DISINFLATION
The difference between disinflation and deflation is prices don’t fall. The economy is still witnessing increase in prices, though there has been a slowdown in the pace the rise in prices has slowed down significantly as compared with the previous year.
Economists have always argued in favour of inflation for a growing economy. If inflation is slowing down quickly and is not accompanied by a faster pace of growth in gross domestic product (GDP), it might lead to a slowdown in economic growth.

The rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation. Disinflation occurs when the increase in the “consumer price level”.

If the inflation rate is not very high to start with, disinflation can lead to deflation dcrease in the overall money supply, as well as decreases in the general price level of goods and services, typically as a resulting effect.

DEFLATION
This is when prices actually fall. Such a situation does seem favourable but in reality it’s not a position that any economy would like to be in. Deflation usually moves hand in hand with economic slowdown, lower productivity and loss of jobs. Just like how inflation decreases the value of money, deflation increases its value.