So a lot of students get these confused, disinflation and deflation. Disinflation, we still have inflation, but at a lower rate than previous years. Deflation, well, that's a decline in the price level. Disinflation, there's still inflation, at a lower rate. Deflation is a negative inflation rate, okay? During deflation, the inflation rate is negative. So it's very easy to spot deflation because there's a negative inflation rate. The prices are lower than the previous year. Okay? So note the difference between disinflation and deflation. Here, we've got the definitions again, okay? So make sure you've got those down, alright?

So look at these two subsections of US history here and let's look at the Consumer Price Index and the inflation rates during each period. Which one do you think is a period of disinflation and which is a period of deflation? So I'm guessing you guys thought this one is deflation, right? What if I were to tell you that you're absolutely right? This is deflation, right? We're seeing negative inflation rates, right? The price level is decreasing during this period, right? The price level is decreasing. Price level decreasing, inflation rate negative. I'm going to write that here, negative.

Now look at the next five years here. The price level is still increasing, right? Increasing, increasing, increasing, increasing in each of those periods. From one to the next, it's increasing, but look at our inflation rate. Okay. In this first one, it's increasing but look, decreasing, decreasing, decreasing. This is a disinflation. We'll say that these four years right here, this is disinflation. Notice that the price level is still increasing, but at a smaller and smaller rate. So this was the Paul Volcker disinflation right here. Okay? So he was the one in charge of the Fed at that point and he helped that disinflation happen and get us out of those crazy inflation rates at the end of the 1970s. Cool? So make sure you don't confuse those, disinflation and deflation. That's always an easy trick on the test and easy points if you remember it. Cool? Alright, let's pause here and move on to the next video.