Part 4/8:
To better illustrate the divergent effects of inflation and deflation, consider two economic scenarios:
- Inflationary Economy: In this situation, individuals experience rising income while facing moderate inflation. For homeowners with fixed-rate mortgages, as their incomes increase relative to the fixed mortgage payments, they effectively have more disposable income. Over time, the cost of housing becomes a smaller share of their income, leading to greater wealth accumulation.