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Chapter 17 Reflection

Inflation is an increase in the money supply. Prices appear to become higher because currency loses its value, so it requires more money to buy the same item. People may begin to hoard groceries in order to get the most bang for their buck. This can create a feedback loop as people seek to spend their earnings rather than allow it to depreciate.

Deflation is a constriction of the money supply. Prices appear to become lower, and people may delay their purchases in order to save money... so the economy stagnates. In addition, consumers have less disposable income after they have paid for the necessities because their wages are typically smaller. If wages are smaller, then any pre-existing debt becomes more difficult to pay off. This can be a dangerous position because the USA's economy increasingly relies on debt.


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