Joined: 02 Jan 2012
Online Status: Offline Posts: 5
Posted: 27 Feb 2012 at 20:48 | IP Logged
OK, so in my becker material, its says that during
inflation AD goes up, and during inflation AD goes down. I
am a little confused because inflation means that prices
are increasing and deflation is that prices are decreasing.
SO why would demand go down when prices are decreasing? and
why would demand go up when prices are increasing?
Joined: 14 Nov 2010 Location: United States
Online Status: Offline Posts: 144
Posted: 09 Mar 2012 at 05:56 | IP Logged
bomfmo: from http://economics.about.com/cs/money/a/inflation_terms.htm I understand the following: "The inflation resulting from an increase in aggregate demand is called demand-pull inflation. Such an inflation may arise from any individual factor that increases aggregate demand, but the main ones that generate ongoing increases in aggregate demand are: Increases in a) the money supply b) government purchases c) the price level in the rest of the world. -=-= Deflation is occurring when prices are declining over time. This is the opposite of inflation; Deflation is simply that over time money is becoming relatively more valuable than the other goods in the economy; Deflation generally occurs when the supply of goods rises faster than the supply of money. -= Hope this helps. -=-= Passed all 4 papers: 2011
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Topic: inflation and deflation question
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