Deflation vs Disinflation
Deflation and Disinflation are two Unemployment & Inflation concepts in AP Economics that students often mix up. In short: deflation is deflation is a sustained price decrease. Meanwhile, disinflation is disinflation is a decrease in inflation rate. Here is how they compare side by side.
Deflation is a sustained price decrease.
Deflation is a rare and unusual economic phenomenon where there is a sustained decrease in the general price level of goods and services in an economy over a period of time. It is measured as an annual percentage decrease in the CPI. Deflation can be caused by various factors, including a decrease in the money supply, a decrease in aggregate demand, and improvements in productivity. Deflation can have negative effects on the economy, such as reducing spending and investment, and increasing the burden of debt.
Disinflation is a decrease in inflation rate.
Disinflation occurs when the rate of inflation decreases over time, but prices are still rising. It is a situation where the inflation rate is slowing down, but not yet negative. Disinflation can be caused by various factors, including a decrease in aggregate demand, an increase in productivity, and a decrease in the money supply. Disinflation is often seen as a positive development, as it can help to reduce the cost of living and increase the purchasing power of consumers.
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