epay a loan to finance a purchase in future dollars that are worth less than the dollars used to make a purchase today. Thus, central bankers focusing on the control of inflation attempt to manage the economy in such a way that mild inflation motivates spending without allowing runaway price inflation to destabilize the general economy (Bernanke 3-4).
In contrast to inflation, deflation in an economy inhibits not only economic growth but also inhibits the maintenance of a steady state in an economy. Bernanke (2) defines deflation as a general decline in price levels, as opposed to price level declines in specific industries or sectors of an economy. The primary cause of deflation is a collapse of aggregate demand that extends for a period sufficien
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