Q. Consider the following statements:
1.Disinflation refers to a situation where specific goods and services decrease in price while others increase.
2.Disinflation is a reduction in the rate of inflation, while deflation is a decrease in the overall price level.
3.Disinflation increases purchasing power for consumers.
Which of the statements given above are correct?
Explanation –
Statement 1 is incorrect. Disinflation refers to a decrease in the rate of inflation, meaning that the overall increase in prices of goods and services is slowing down. It does not specifically refer to certain goods and services decreasing in price while others increase.
Statements 2 and 3 are correct. Disinflation occurs when the rate of inflation slows down, but prices are still rising, albeit at a slower pace. Deflation, on the other hand, happens when the overall price level decreases. Disinflation can lead to increased purchasing power for consumers because their money goes slightly further as the rate of price increase slows down. However, it’s important to note that disinflation isn’t always a positive development. In some cases, it might indicate a weakening economy.
Source: The Hindu
