Inflation occurs when the price of goods and services rise, while deflation occurs when those prices decrease. The balance between the two economic conditions, opposites of the same coin, is delicate, and an economy can quickly swing from one condition to the other.
Inflation is caused when goods and services are in high demand, creating a drop in availability. Supplies can decrease for many reasons: A natural disaster can wipe out a food crop; a housing boom can exhaust building supplies, etc. Whatever the reason, consumers are willing to pay more for the items they want, causing manufacturers and service providers to charge more.
Deflation occurs when too many goods are available or when there is not enough money circulating to purchase those goods.
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As the law of demand and supply goes, money supply has the same effect. Money supply is the quantity or number of money produced and circulating inside a country. As the supply of money increases, the demand for money decreases which make prices of goods rise up resulting to inflation. But when the supply of money decreases, the demand for money increases making the price of goods decrease resulting to deflation.