HPAS/Allied Mains 2022 Answer Writing Challenge Day 182: Model Answer

QUESTION: Differentiate between Disinflation and Deflation. (4 marks/ 60 words)

Answer:

Deflation is a decrease in general price levels throughout an economy, while disinflation is what happens when price inflation slows down temporarily. Deflation, which is the opposite of inflation, 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.

Deflation is the drop in general price levels in an economy, while disinflation occurs when price inflation slows down temporarily.

Deflation, which is harmful to an economy, can be caused by a drop in the money supply, government spending, consumer spending, and corporate investment.

Central banks fights disinflation by expanding its monetary policy and lowering interest rates.

Disinflation can be caused by a recession or when a central bank tightens its monetary policy.