Q.Distinguish between inflation and deflation.

Inflation and deflation move the general price level in opposite directions, and this single difference reverses almost every one of their economic effects.

Inflation is a sustained, persistent rise in the general price level of goods and services, which reduces the purchasing power of money over time. It typically hurts fixed-income earners, creditors and savers, while benefiting debtors and producers.

Deflation is a sustained, persistent fall in the general price level — the exact opposite movement — which raises the purchasing power of money over time. Its effects are the mirror image of inflation's: fixed-income earners and creditors gain (their money buys more, or is worth more in real terms), while producers and debtors lose (falling prices squeeze profit margins, and the real burden of existing debt rises). …

A frequent mistake is treating 'deflation' and 'disinflation' as the same thing — disinflation means inflation is still positive but falling (e.g. from 8% to 5%), while deflation means th …