page_title: Macroeconomics
section_title: Inflation and deflation
hierarchical_section_title: Macroeconomics / Basic macroeconomic concepts / Inflation and deflation
caption_attribution_description: English: Chart of M2 money supply growth and inflation as measured by the GNP price deflator. Data from 1875 to 1959 are taken from Appendix B of The American Business Cycle: Continuity and Change (edited by Robert Gordon). Data available here: http://www.nber.org/data/abc/. Data from 1959 onward are taken from the Fred database. Series IDs GNPDEF and MSNS. See for similar charts: http://research.stlouisfed.org/publications/review/98/11/9811wd.pdf and https://www.clevelandfed.org/Research/Commentary/1999/0801.pdf
context_page_description: Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as GDP, unemployment rates, national income, price indices, output, consumption, unemployment, inflation, saving, investment, energy, international trade, and international finance.
  Macroeconomics and microeconomics are the two most general fields in economics.
context_section_description: A general price increase across the entire economy is called inflation. When prices decrease, there is deflation. Economists measure these changes in prices with price indexes. Inflation can occur when an economy becomes overheated and grows too quickly. Similarly, a declining economy can lead to deflation.
  Central bankers, who manage a country's money supply, try to avoid changes in price level by using monetary policy. Raising interest rates or reducing the supply of money in an economy will reduce inflation. Inflation can lead to increased uncertainty and other negative consequences. Deflation can lower economic output. Central bankers try to stabilize prices to protect economies from the negative consequences of price changes.
  Changes in price level may be the result of several factors. The quantity theory of money holds that changes in price level are directly related to changes in the money supply. Most economists believe that this relationship explains long-run changes in the price level. Short-run fluctuations may also be related to monetary factors, but changes in aggregate demand and aggregate supply can also influence price level. For example, a decrease in demand due to a recession can lead to lower price levels and deflation. A negative supply shock, such as an oil crisis, lowers aggregate supply and can cause inflation.
caption: The ten-year moving averages of changes in price level and growth in money supply (using the measure of M2, the supply of hard currency and money held in most types of bank accounts) in the US from 1875 to 2011. Over the long run, the two series show a close relationship.
exif: {}