Sample Solution

The impact and consequences of both inflation and deflation

Inflation occurs when the prices of goods and services rise. Deflation occurs when those prices decrease. The balance between these two economic conditions, opposite sides of the same coin, is delicate and an economy can quickly swing from one condition to the other. Inflation is caused when goods and services are in high demand, thus creating a drop in availability. Supplies can decrease for many reasons: a natural disaster can wipe out a food crop, a housing boom can exhaust building supplies, etc. Deflation can be caused by a combination of different factors, including having a shortage of money in circulation, which increases the value of that money and, in turn, reduces prices.