A Slide Show

I have put this explanation of inflation and deflation together as a "slide show". I suggest, for the sake of continuity, that you proceed through the pages in a linear sequence by clicking the links at the bottom of each page. Once completed you can use the drop-down menu bar near the top of the page to navigate to any page in this presentation

Definitions

Inflation-

an increase in the quantity of money.

Deflation-

a decrease in the quantity of money.

General Price Rise-

a general rise in dollar prices of goods in the market (not inflation).

General Price Decline-

a general rise in dollar prices of goods in the market (not deflation).

The Model

I have constructed the images in this presentation using system dynamics software. System dynamics starts with a graphic representation of a system, generally referred to as a stock and flow diagram, then uses mathematical formulas to model the behavior of the elements of the system.

The model represents the behavior of only a very few elements of an economic system. I have defined very strict limitation on this system in order to isolate the behavior of those elements. This makes the model theoretically accurate, even though less than complete. The complexity of economic systems precludes modeling them accurately (in spite of what your econometric friends will tell you).