reflation
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reflation
Reflation is the efforts to fight deflation by increasing the money supply, lowering interest rates and increasing Government spending.
Last updated: June 21, 2004.
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Reflation
A fiscal or monetary policy, designed to expand a country's output and curb the effects of deflation. Reflation policies can include reducing taxes, changing the money supply and lowering interest rates.
The term "reflation" is also used to describe the first phase of economic recovery after a period of contraction.
Investopedia Says:
Reflation policy has been used by American governments, to try and restart failed business expansions since the early 1600s. Although almost every government tries in some form or another to avoid the collapse of an economy after a recent boom, none have ever succeeded in being able to avoid the contraction phase of the business cycle. Many academics actually believe government agitation only delays the recovery and worsens the effects.
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Learn about the tools the Fed uses to influence interest rates and general economic conditions. Formulating Monetary Policy
Learn how governments adjust taxes and government spending to moderate the economy. What Is Fiscal Policy?
Does the amount of goods and services produced set the pace for economic growth? Here are the arguments. Understanding Supply-Side Economics
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reflation
IN BRIEF: n. - Restoration of currency after a period of value dropping.
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Reflation
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This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2008) |
Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle. It is the opposite of disinflation, which seeks to return the economy back down to the long-term trend.
Reflation, which can be considered a form of inflation (increase in the price level), is contrasted with inflation (narrowly speaking) in that "bad" inflation is inflation above the long-term trend line, while reflation is a recovery of the price level when it has fallen below the trend line. For example, if inflation had been running at a 3% rate, but for one year it falls to 0%, the following year would need 6% inflation (actually 6.09% due to compounding) to catch back up to the long-term trend. This higher than normal inflation is considered reflation, since it is a return to trend, not exceeding the long-term trend.
This distinction is predicated on a theory of economic growth where there is long-term growth in the economy and price level, which is widely accepted in economics. Just as disinflation is considered an acceptable antidote to high inflation, reflation is considered to be an antidote to deflation (which, unlike inflation, is considered bad regardless of its magnitude).
Policy
Further information: Economic stimulus
It can refer to an economic policy whereby a government uses fiscal or monetary stimulus in order to expand a country's output. This can possibly be achieved by methods that include reducing tax, changing the money supply, or even adjusting interest rates.
Originally it was used to describe a recovery of price to a previous desirable level after a fall caused by a recession. Today it also (in addition to the above) describes the first phase in the recovery of an economy which is beginning to experience increasing prices at the end of a slump. With rising prices, employment, output and income also increase till the economy reaches the level of full employment.
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