Inflation/Deflation & The 2008 Recession & Housing Bubble part1

Inflation and Deflation are basically a period of rising and falling price levels , inflation is a rise in price levels and deflation is a fall in prices levels. People, Government, and Business buy services and goods. During an inflation such as the 1980s, a unit of currency buys fewer goods and services. Thus, inflation reflects a decrease in purchasing power of money. For instance, a dollar remains 100 cents but if the price of goods increases from 25 cents to 50 cents, you can only buy 2 goods instead of 4. Inflations are sometimes caused by government spending, Businesses & labor unions, and oftenly wars.  A economy is most successful when everyone (big issue today) has jobs and many goods and services are being produced (with the exception of outsourcing). In many cases, a slight shift in prices can cause an economy to grow. However, a steady rise in prices such as an inflation, may create a shortage of goods as consumers hurry too buy before prices rise. Also, the cost of running a business may increase rising the cost of goods which starts the process of inflation all over again. During an inflation many people who owe debts benefit because the real value of the debt decreases (the number of dollars of debt remains constant, but each dollar is worth less). Consequently, creditors, savers, and people on a fixed salary loose money because each dollar is worth less. The main role of a central bank such as the FED (Federal Reserve Bank) is to control inflation and deflation so that the value of money is equal to the value of goods and services being produced through monetary policy.

DEFLATION AND MONETARY POLICY IN PT 2.Housing Bubble pt3.