So, inflation. Prices and paychecks go up (though not toe-to-toe), and money loses value because it takes more money to buy the same thing than it took earlier. We hate it when it's high because prices go up, everything's expensive, we can't buy shit. Consumers cry. However, the opposite is just as bad.
Low inflation means prices aren't going up much, or at all. Consumers cheer. Very low inflation, however, close to 0% or even negative (that's deflation), is a problem. If prices start dropping, rational people will hold off from buying stuff because they'll wait for prices to go even lower. That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money.
Another thing where inflation has meaning, is debt. Mortgages, leases, etc. Even the 10 bucks you owe a friend. If inflation is high, those debts start having less impact on your money because by then you hopefully got a small raise, and so debts are easier to pay off. Low inflation makes debts bite just as hard, and much harder if deflation happens, because bread being cheaper doesn't mean your mortgage payments will be smaller.
Anyways, quick crash course on inflation done, hope you learned something. More educated Peters pls correct me. Barely educated Peter out.
That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money
Right, but not all the businesses. So in the "short term" (which depends), some businesses will close, but some will remain and people will have to buy from the remaining ones. These businesses would be able to hire more people, so they can serve their customers better.
However, since businesses and people are spread out, it could be that closing up a local shop means an entire area of people (however big that may be) would no longer be able to get their goods and services. So its possible that they'd have to move to an area where there is still a business that provides what they need.
Is deflation considered a short term pain for long term gain in the economics world?
Not an economist, can't tell you if it's good or not, but existing examples show that deflation isn't exactly long term gain. Japan has been in a deflation trap for a while, and they're not exactly better off. They've been in deflation for decades and their GDP barely grew. Wages lowered, consumption lowered, foreign competitors surpassed Japanese companies...
Maybe the steps they're taking to mitigate deflation are the reason they can't get through it already. Not sure. But deflation doesn't feel permamnent. It feels like "eventually", "society" benefits from it. Idk
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u/BalticHorndog 9h ago
Hi. Barely educated Peter here.
So, inflation. Prices and paychecks go up (though not toe-to-toe), and money loses value because it takes more money to buy the same thing than it took earlier. We hate it when it's high because prices go up, everything's expensive, we can't buy shit. Consumers cry. However, the opposite is just as bad.
Low inflation means prices aren't going up much, or at all. Consumers cheer. Very low inflation, however, close to 0% or even negative (that's deflation), is a problem. If prices start dropping, rational people will hold off from buying stuff because they'll wait for prices to go even lower. That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money.
Another thing where inflation has meaning, is debt. Mortgages, leases, etc. Even the 10 bucks you owe a friend. If inflation is high, those debts start having less impact on your money because by then you hopefully got a small raise, and so debts are easier to pay off. Low inflation makes debts bite just as hard, and much harder if deflation happens, because bread being cheaper doesn't mean your mortgage payments will be smaller.
Anyways, quick crash course on inflation done, hope you learned something. More educated Peters pls correct me. Barely educated Peter out.