The terms inflation and deflation are used to describe, respectively, a decline or an increase in the value of money, in relation to the goods and services it can buy.
Inflation in the capitalist countries is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Repetitive price increases in these countries erode the purchasing power of money and other financial assets with fixed values, creating serious economic problems and disorders in the economic life of the people. Inflation results when actual economic pressures and uncertainty of future economic developments caused by the unplanned and disorderly nature of the capitalist economies increase the demand for goods and services over the supply available at existing prices or when available output is restricted by faltering productivity.
Deflation in the capitalist countries involves a sustained decline in the aggregate level of prices; it is usually associated with a prolonged erosion of the economic activity and high unemployment in these countries. Widespread price declines are usually rare, and inflation is now the dominant variable affecting and eroding the development of the capitalist economy.
Kinds of Inflation
The chronic inflation in the capitalist countries is characterized by much higher price increases, at annual rates of 10 to 30 percent in some capitalist economies. Chronic inflation tends to become permanent and ratchets upward to even higher levels as distortions of the real economic situation and negative expectations of future economic development accumulate. As the chronic inflation sets in, normal economic activities in these countries are disrupted: consumers buy large amounts of goods and services in advance to avoid even higher prices; real estate speculation increases; businesses concentrate on short-term investments;... [continues]
Cite This Essay
(2011, 05). Business English. StudyMode.com. Retrieved 05, 2011, from http://www.studymode.com/essays/Business-English-697602.html
"Business English" StudyMode.com. 05 2011. 05 2011 <http://www.studymode.com/essays/Business-English-697602.html>.
"Business English." StudyMode.com. 05, 2011. Accessed 05, 2011. http://www.studymode.com/essays/Business-English-697602.html.