Finance and capital markets Inflation Deflation Deflation Velocity of Money Rather than Quantity Driving Prices Deflation Despite Increases in Money Supply Deflationary Spiral Deflation Basics of deflation Back Deflation ⇐ Use this menu to view and help create subtitles for this video in many different languages. You'll probably want to hide YouTube's captions if using these subtitles. Deflation Deflation is literally just a lowering of prices, or a general decrease in the level of the price for goods and services Or another way to think about it, since deflation is an increase in the level of prices, you can just view it as negative inflation. And so, let's say we're the folks at the bureau of labor statistics and we are trying to compute the CPI Index And one period, let's call it Period 1 over here. We have our CPI index for Urban consumers that is quoted most often. And we have one basket of goods and it will have housing in it. It will have transportation in it. It will have fuel in it. It might has some proxy for entertainment in it whatever else inside of it and that basket of goods, let's say in period One, and this is a simplification, runs that urban consumer on average 100 dollars, and then we go to Period Two, and we look at that same basket of goods, maybe we're adjusting certain things, maybe some products became obsolete and we have to replace or there has to be some adjustments for technology... given that, assuming that everything else is equal that same basket of goods is now running at 98 dollars, and so, the total costs of goods and services for this kind of average consumer has gone down by 2 dollars. or we can say, that we've experienced negative 2 percent inflation which really just in another way of saying we have experienced deflation now, deflation is not the norm, especially for growing economies, the way that our current economic systems run although it does happen, Japan in particular is probably the most recent, most famous case of deflation and the main reason why economist really don't like deflation, in particular why central bankers really don't like deflation is that it makes it much harder to control the economy, or to fuel the economy which interest rates alone. or actually just with printing money alone, and I'll go into a little bit more depth with that in future videos One thing I do want to make clear, is although deflation is not what we normally see in the broader economy as a whole it does happen very frequently in specific sectors and the most common one is in the technology sector, specifically in hardware, we've all experienced buying a laptop, at one period.. so right now you buy a laptop for maybe 1000 dollars,and then 6 months later, you see the exact same laptop for 500 dollars, and that's just because the rate of technological innovation is growing so fast, that they can produce the same amount of memory and processing power for a lot cheaper now, or for the same amount of money, you can get much more memory and processing power laptops with big screen TVs and phones and all the rest. Questions Tips & Feedback Be specific, and indicate a time in the video: At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger? Have something that's not a question about this content? Post a tip or feedback General discussion about the site Report a technical problem with the site Request a video or feature This discussion area is not meant for answering homework questions. Formatting tips Cancel or ( total) Share a tip When naming a variable, it is okay to use most letters, but some are reserved, like 'e', which represents the value 2.7831... Suggest a fix At 2:33, Sal says "double bonds" but should say "single bonds." Have something that's not a tip or feedback about this content? Ask a question General discussion about the site Report a technical problem with the site Request a video or feature This discussion area is not meant for answering homework questions. Formatting tips Cancel or Discuss the site For general discussions about Khan Academy, visit our Reddit discussion page. Flag inappropriate posts Here are posts to avoid making. If you do encounter them, flag them for attention from our Guardians. abuse disrespectful or offensive an advertisement not helpful low quality not about the video topic soliciting votes or seeking badges a homework question a duplicate answer repeatedly making the same post wrong category a tip or feedback in Questions a question in Tips & Feedback an answer that should be its own question about the site a question about Khan Academy (Visit our FAQ) a post about badges a technical problem with the site (Report a problem) a request for videos or features
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