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Inflation and deflation

Which is worse?

In this column, David Horner offers guidance on answering exam questions concerning the relative significance of inflation and deflation for the macroeconomy

Control of inflation is among most governments’ macroeconomic objectives. Over the last 30 years, some would argue that it has been the prime objective for the UK government’s policy, with monetarist economists arguing that all other objectives (growth, low unemployment, etc.) could only be achieved once inflation has been controlled. Other economists may dispute this, but few would disagree with the claim that keeping control of inflation is important. Here we are going to consider a potential 25-mark question on this topic:

Evaluate which should be seen as the greatest problem for an economy — inflation or deflation?

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Previous

Paisley shawls and the market for luxury goods

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The economics of sustainable development

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