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Consider the following differences between Disinflation and deflation:
While Deflation is a decrease in general price levels throughout an economy, disinflation is the reduction of the rate of inflation.
Deflation increases the value of money whereas disinflation decreases the value of money.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Consider the following differences between Disinflation and deflation...
Differences between Disinflation and Deflation
Definition:
- Deflation: A decrease in general price levels throughout an economy.
- Disinflation: The reduction of the rate of inflation.
Impact on Money Value:
- Deflation increases the value of money.
- Disinflation decreases the value of money.
Correct statement:
- Both 1 and 2 are correct.
Explanation:
Deflation and disinflation are two different but related economic concepts. Deflation occurs when the general price level of goods and services in an economy decreases, which means that money can buy more goods and services. On the other hand, disinflation occurs when the rate of inflation decreases, which means that the overall price level is still increasing, but at a slower rate.
In terms of impact on money value, deflation increases the value of money because it can buy more goods and services. However, disinflation decreases the value of money because the rate of inflation is still increasing, albeit at a slower pace.
Therefore, both statements given in the question are correct. Deflation and disinflation have different impacts on money value, and they are not interchangeable terms. Understanding the differences between these two concepts is important in analyzing the overall health of an economy and making informed decisions about monetary policy.
Definition:
- Deflation: A decrease in general price levels throughout an economy.
- Disinflation: The reduction of the rate of inflation.
Impact on Money Value:
- Deflation increases the value of money.
- Disinflation decreases the value of money.
Correct statement:
- Both 1 and 2 are correct.
Explanation:
Deflation and disinflation are two different but related economic concepts. Deflation occurs when the general price level of goods and services in an economy decreases, which means that money can buy more goods and services. On the other hand, disinflation occurs when the rate of inflation decreases, which means that the overall price level is still increasing, but at a slower rate.
In terms of impact on money value, deflation increases the value of money because it can buy more goods and services. However, disinflation decreases the value of money because the rate of inflation is still increasing, albeit at a slower pace.
Therefore, both statements given in the question are correct. Deflation and disinflation have different impacts on money value, and they are not interchangeable terms. Understanding the differences between these two concepts is important in analyzing the overall health of an economy and making informed decisions about monetary policy.
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Community Answer
Consider the following differences between Disinflation and deflation...
- Deflation is a decline in general price levels throughout an economy, typically associated with a contraction in the supply of money and credit in the economy. Deflation is the opposite of inflation, which represents widespread price increases of goods and services in an economy.
- Disinflation is a temporary slowing of the pace of price inflation. Unlike deflation, which refers to the direction of prices, disinflation refers to the rate of change in the rate of inflation.
- Deflation is mainly caused by shifts in supply and demand. Disinflation, on the other hand, shows the rate of change of inflation over time. The inflation rate is declining over time, but it remains positive. Hence, statement 1 is correct.
- During times of deflation, since the money supply is tightened, there is an increase in the value of money, which increases the real value of debt.
- Inflation increases the price of goods and services over time, effectively decreasing the number of goods and services one can buy with a dollar in the future as opposed to a dollar today. This effectively decreases the time value of money. Since inflation is positive during disinflation, the value of money declines. Hence, statement 2 is correct.
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Consider the following differences between Disinflation and deflation: While Deflation is a decrease in general price levels throughout an economy, disinflation is the reduction of the rate of inflation. Deflation increases the value of money whereas disinflation decreases the value of money. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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Consider the following differences between Disinflation and deflation: While Deflation is a decrease in general price levels throughout an economy, disinflation is the reduction of the rate of inflation. Deflation increases the value of money whereas disinflation decreases the value of money. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following differences between Disinflation and deflation: While Deflation is a decrease in general price levels throughout an economy, disinflation is the reduction of the rate of inflation. Deflation increases the value of money whereas disinflation decreases the value of money. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following differences between Disinflation and deflation: While Deflation is a decrease in general price levels throughout an economy, disinflation is the reduction of the rate of inflation. Deflation increases the value of money whereas disinflation decreases the value of money. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?.
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