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Generate QuizWhat is the primary difference between 'Disinflation' and 'Deflation'?
- Disinflation means falling prices, while deflation means rising prices
- Disinflation is a slowdown in the rate of inflation, while deflation is a negative inflation rate (falling prices)
- Both terms mean exactly the same thing
- Disinflation applies to assets, deflation applies to consumer goods
Answer: Disinflation is a slowdown in the rate of inflation, while deflation is a negative inflation rate (falling prices)
Disinflation occurs when the inflation rate decreases over time (e.g., dropping from 8% to 4%); prices are still rising, just at a slower pace. Deflation, however, occurs when the general price level actually falls below zero (e.g., -2%), meaning money gains purchasing power, which is often a symptom of a severe economic recession.