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Inflation, Deflation, Hyperinflation and Stagflation There are four ways the economy works when it comes to prices, employment, and what the value of the dollar is. These are inflation, deflation, hyperinflation and stagflation. Inflation can be a good thing or a bad thing, in a good economy with low employment it is good to have inflation, but when there is bad unemployment inflation is a bad thing because people do not have or earn enough money to keep up with changing prices. Inflation decides a lot in the way our economy runs and works and we use it to measure many different things. Inflation (“A situation in which the cost of living is rising and the value of money is shrinking”)(Bade and Parkin p. G-4), is basically how far will your money go and what can you afford to buy with it. When there is inflation the value of a dollar never stays constant. Money is purchasing power and as prices go up you do not have the same amount of purchasing power, you have less and less. Things are a lot more expensive than they used to be, a lot of things have even doubled in price. Prices seem to go up but salaries and wages do not seem to go up as fast as prices do. Inflation usually reduces the level of economic activity that happ