Anonymous asked in Social ScienceEconomics · 8 months ago

what does deflation do to the worth of a dollar, increase it or decrease the value of it?

5 Answers

  • 8 months ago

    Deflation would increase the purchasing power of the dollar. Inflation would decrease the purchasing power of the dollar. 

  • Oiy
    Lv 6
    8 months ago

    The dollar should be depreciated due to lower demand and lower prices. If the FED has started QE, the interest rate will sink, and so is the dollar.

  • Anonymous
    8 months ago

    The value of a dollar does not change, it will always be 100 cents. What changes is the cost of goods and services. Inflation is when costs go up, deflation is when costs go down. A healthy economy will keep inflation and deflation at a low for as long as possible. Deflation can lead to a depression if it gets bad enough and inflation can lead to a recession. Generally when demand goes up you will see inflation and when demand goes down you will see deflation. It is better to invest in things that are not hugely impacted by inflation or deflation like real estate instead fiat money.

  • Inflation decreases the purchasing power of your money.  With inflation, a person has an incentive to trade their credits for products, which helps maintain a growing and thriving economy.  After all, why hold onto your $100 today when the thing you want will be worth $101 tomorrow?  Better to buy today and let tomorrow take care of itself.

    Deflation increases the purchasing power of your money, but the drawback is that since it is now more prudent for you to hold onto your money (since it's going to be worth more tomorrow and trading it for product would be wasteful), demand drops.  When demand drops, production is dropped, which means that there's a reduced need for labor, which means that people lose jobs and there are no other jobs for them to move into.  With less things to buy, your money might be considerably worth more, but you can't spend it, so it might as well not even exist.

    The game is to keep people buying stuff, to keep money and wealth circulating as much as possible.  It's a gigantic juggling act that only works as long as everybody participates.

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  • Anonymous
    8 months ago

    Deflation decreases the value of a dollar. Inflation increases the value of a dollar.

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