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Q18 (IAS/2010) Economy › Money, Banking & Inflation › Inflation concepts Answer Verified

Which one of the following statements is an appropriate description of deflation ?

Result
Your answer: —  Â·  Correct: C
Explanation

Deflation is a sustained decline in the general price level of goods and services — i.e., a persistently negative inflation rate — typically caused by weak demand or excess supply and often associated with unemployment and recession, which raises the real value of money [1]. By contrast, disinflation refers to a slowdown in the rate of inflation while prices still rise, not a fall in price levels, so a falling inflation rate (option 4) is disinflation rather than deflation [2]. Option 1 describes currency depreciation (exchange-rate movement), and option 2 describes a recessionary condition; neither capture the price-level decline that defines deflation [1].

Sources

  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > Deflation > p. 74
  2. [2] https://www.stlouisfed.org/open-vault/2023/august/explaining-inflation-disinflation-deflation
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