Inflation

This week, the text readings include a discussion of inflation. While you are already familiar with the basics of inflation, do read the text with care, as it gives you useful fuller detail on the relationships between money supply, monetary policy, and inflation. But at the moment, the world isn't facing any meaningful inflationary pressure. But there are numerous signs of potential deflation. And that has several central banks nervous. However, we rarely discuss deflation in economics courses. The last time it happened in the US was during the Great Depression. Japan dealt with deflation during the 1990s and off and on since then. China has come close, but central bank actions seem to have prevented it. And now the Euro Zone is facing possible deflation to which the European Central Bank has finally started to respond. This week, explore the causes of deflation, why it is considered to have negative consequences for an economy, and how it can be prevented or stopped once started. Is there a linkage between inflation and deflation?