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ECONOMICS
Asked by Shahab Saif

Why may disinflation occur? What are its implications on an economy?

A decrease in aggregate demand compared to the period before or an increase in aggregate supply compared to the period before. However, note that price levels are still rising albeit at a slower rate, this means that AD could still be rising... It is just rising at a slower rate.

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Ian Tay
·

92 students helped

Several main reasons can cause an economy to experience disinflation. If a central bank decides to impose a tighter monetary policy and the government starts to sell off some of its securities, it could reduce the supply of money in the economy, causing a disinflationary effect. Similarly, a contraction in the business cycle or a recession can also cause disinflation. For example, businesses may choose not to increase prices to gain greater market share, leading to disinflation.

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Ryan Lai
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11.7k students helped

A reduction in aggregate demand or an increase in long run aggregate supply. If moderate can mean lower prices (this is good) but may indicate a slowing down in the economy and if it continues may lead to deflation.

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Michael Comba
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9.3k students helped

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