18. inflation, disinflation, deflation

Question 1

inflation

Answer 1

price levels increases

Question 2

disinflation

Answer 2

price level increases at a slower rate
ex. inflation rate moves from 4% to 3%

Question 3

deflation

Answer 3

price levels decreases (economists want to avoid this)

Question 4

inflation target

Answer 4

2%
lower: chance economy will move to deflationary territory
0%: risk deflationary spiral (only way to avoid the risk of deflation would be having a universal price fixing, this is bad because markets respond to supply and demand + black market could emerge)

Question 5

price levels in the short-run vs. long run

Answer 5

short run: matters
long run: doesnt matter