How do inflation and deflation affect the purchasing power of money and the economy?

Inflation reduces the purchasing power of money, meaning you can buy fewer goods and services with the same amount of money. It occurs when prices rise across the economy. While moderate inflation can signal economic growth, high inflation erodes savings and creates uncertainty. Conversely, deflation increases the purchasing power of money, allowing consumers to buy more with less. However, deflation can lead to decreased demand, as consumers and businesses delay purchases in anticipation of falling prices, potentially slowing economic growth and increasing unemployment. Both inflation and deflation can disrupt economic stability and affect consumer confidence.