(I’m American) Inflation is the rising cost of goods and services. Inflation constantly goes up by varying degrees. When economists say “inflation is decreasing”, that just means that the rate of inflation has slowed, not that inflation reversed.
If inflation is causing money to be less valuable over time, why would it be bad to have deflation? Would that not make my money more valuable? I’ve been told it would be very bad, but not in a way that I understand
In: Economics
Okay, so say I have 100 bucks saved up and I want to buy cookies. Cookies are 5 bucks a piece so I can buy 20 cookies right now. If I do that, the baker gets 100 bucks, some of that goes to taxes, and the baker gets to keep 90 bucks, with which she buys flour or sugar, pays rent or even a book from the book store. This way, money keep circling around and around and this is great because everyone gets to work and make stuff and buy stuff!
Now imagine I have 100 bucks and I want to buy cookies but there is a 100% deflation per day, which means every day the price of stuff goes down by half. I can buy 20 cookies now for 5 bucks a pop, OR I can wait a day since cookies will be only 2.50 tomorrow, and I can buy 40. I would like more cookies, so I wait. The baker doesn’t get my money and can’t buy things herself.
The next day, I still want cookies, but I know that if I wait until tomorrow, cookies will only be $1,25, so I could buy 80 for the 100 bucks I have. I would like more cookies, so I wait. The baker still doesn’t get any money and she is starting to be in trouble. Everybody is waiting until tomorrow to buy cookies, so she isn’t making any money today. This also means she isn’t buying flour or sugar, so those suppliers aren’t making any money either.
This continues basically forever, since I know I can get twice as many cookies if only I wait until tomorrow. My 100 bucks stays with me and nobody gets to work or make stuff or buy stuff. This would be an absolute disaster for everyone involved.
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