WITH THE AID OF DIAGRAMS, ILLUSTRATE THE CAUSES OF INFLATION AND DEFLATION, AND BY COMPARING THEIR ECONOMIC EFFECTS CONSIDER HOW BOTH CAN AFFECT THE CORPORATE SECTOR.

The essay will describe causes of inflation and deflation and explain how they can affect the corporate sector.

1. INTRODUCTION
DEFINITION OF INFLATION AND DEFLATION
Inflation is a process in which the price level is rising and money is losing value. (Parkin, Powell, Matthews p654)

Inflation tends to rise when at the current price level, demand for goods and services in the economy are greater than economy's ability to produce goods and services.
The graph below shows continuously growing inflation, occurred by a rising price level.


If the price level is rising, the inflation rate is positive. If the price level rises at a faster rate, the inflation rate increases.
Inflation is measured with a price index.
The two main measures of inflation are: the Retail Price Index (RPI) and Consumer Price Index......

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Title: Causes Of Inflation And Deflation
Approximate Word Count: 2098
Approximate Pages: 9 (250 words per double-spaced page)

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