What is Deflation - Deflation Explained in 3 Minutes | Summary and Q&A

TL;DR

Deflation is the opposite of inflation, where prices decrease over time, impacting the economy negatively.

Key Insights

• ⌛ Deflation is the opposite of inflation, causing prices to decrease over time.
• ❓ It is measured using the Consumer Price Index (CPI).
• 😵‍💫 Deflation can lead to a deflationary spiral, negatively impacting the economy.

Transcript

in our last video we looked at inflation and how it affected investments in this video we're going to look at the opposite of inflation which is deflation if you're not sure what inflation is you should watch our what is inflation video because it's crucial to understand deflation you can click right here or you can check below for a link to that v... Read More

Questions & Answers

Q: What is deflation and how is it different from inflation?

Deflation is when prices of goods and services decrease over time, opposite of inflation where prices increase. It negatively impacts the economy by causing a decrease in spending.

Q: How is deflation measured and what are its implications?

Deflation is measured using the Consumer Price Index (CPI). It can lead to a deflationary spiral where people delay purchases, leading to lower demand, laying off workers, and further price decreases.

Q: Why is deflation dangerous for the economy?

Deflation is dangerous as it can lead to a cycle of decreasing prices, lower spending, and economic slowdown. People delay purchases, causing businesses to suffer, leading to a negative impact on the overall economy.

Q: How does the Federal Reserve respond to deflationary periods?

The Federal Reserve responds to deflation by cutting interest rates to encourage borrowing and spending, stimulating the economy to avoid a prolonged period of deflation.

Summary & Key Takeaways

• Deflation is the decrease in prices of goods and services over time, opposite of inflation.

• It is measured using the Consumer Price Index (CPI).

• Deflation can be dangerous for an economy, leading to a deflationary spiral.