(1) Inflation generally refers to the phenomenon that the circulation of paper money exceeds the actual amount of money needed in commodity circulation, which leads to the devaluation of paper money and the rise of prices. Its essence is that the total social demand is greater than the total social supply. Inflation in modern economics refers to the rise of the overall price level. General inflation refers to the decline in the market value or purchasing power of money. The money supply is determined by the central bank. The inflation we are talking about now includes: 1, demand-driven inflation; 2. Cost-driven inflation; 3. Several types of structural inflation. First, there is the possibility of stagflation in cost-driven inflation, that is, economic development is restricted, while demand-driven inflation is beneficial to economic development; Secondly, we have two ways to deal with inflation. One is unexpected inflation, which is sudden and people are not psychologically prepared for inflation in advance. The other is expected inflation, which will produce inertia, because everyone will increase their profits or demand higher wages in order not to harm their own interests, further promoting the degree of inflation. 1. The destruction of inflation on production development First of all, inflation devalues the special funds of enterprises, making it difficult for enterprises to update their equipment and technological transformation. Secondly, under the condition of inflation, the prices of primary products such as raw materials often rise faster than those of finished products, which will increase the risk of production investment and operating costs. Thirdly, inflation relieves the pressure of price competition and non-price competition, so that enterprises do not have to win the market by reducing costs, nor do they have to use various measures to improve product quality to enhance their competitiveness, which will not be conducive to technological progress and production efficiency of enterprises. Finally, inflation is not conducive to promoting producers to work hard. Producers can demand higher wages on the grounds of rising prices. If they are not satisfied, it will affect the production mood, and then affect the improvement of labor productivity. Inflation disturbs the normal circulation order. First of all, inflation distorts the market price signal, resulting in the rise and fall of the price level can not truly reflect the changes in the relationship between commodity supply. Distorted prices will make resources flow and combine blindly, thus causing great waste of social resources. Secondly, inflation has changed the demand for goods. In the period of inflation, in order to preserve the value and prevent the price from rising further, people will change their money into commodities as soon as possible, and pay less attention to whether this commodity is necessary for them. This abnormal demand and snap-up behavior will accelerate the circulation of money, make the supply of goods more short, and then aggravate inflation. 3. Inflation has a destructive effect on distribution. Inflation has lowered the real wage level. During the period of rising prices, wage adjustment should be carried out in stages to prevent the actual income level of working-class people from falling excessively. However, after wage adjustment, prices have risen again, and the profits of enterprises will increase accordingly. Those who earn income from profits can increase their income additionally, thus aggravating the unfair distribution of society. The continuous price increase devalues retirees' life savings, undermines social equity and induces social unrest and moral crisis. In addition, although inflation is actually a compulsory tax, in fact, the income of this "tax" is limited, which will lead to a substantial increase in fiscal expenditure. 4. The impact of inflation on the financial industry is firstly the impact on bank liabilities. The bank's funds mainly come from external funds. When inflation occurs, when the nominal interest rate remains unchanged, the real interest rate falls, and the interest burden of banks will be reduced. Secondly, the impact on bank assets. When inflation occurs, the real interest income of banks will decrease. When the nominal interest rate remains unchanged, the real interest rate falls, which is not conducive to banks. Thirdly, inflation will reduce borrowing costs, thus inducing excessive demand for funds, forcing financial institutions to strengthen credit line management, thus weakening the operating efficiency of financial institutions. Fourth, because inflation is beneficial to debtors and harmful to creditors, normal credit activities are destroyed and bond issuance is blocked, which in turn leads to currency credit crisis. 5. Inflation makes the value storage function of currency symbols lose, the value scale and price standard are confused, and it is easy to run away, which may lead to bank bankruptcy, bankruptcy and even political crisis. Because inflation, especially hyperinflation, has a great destructive impact, governments all over the world attach great importance to the control of inflation. Controlling inflation is often at the expense of temporarily reducing production, because the basic method of anti-inflation is to reduce the growth of aggregate demand. The anti-inflation policy tools that the government can use include fiscal policy, monetary policy, monetary policy, investment policy, exchange rate policy, foreign trade policy, bank interest rate and so on. (2) Deflation: the expansion of people's consumption capacity and production capacity, as well as the disconnection between the central bank and the national tax operation, will make the currency circulating in the market in an absolute and relatively scarce state, which is called deflation. Deflation and inflation are both monetary phenomena, so we should use monetary means to solve the problem. The influence of deflation on economic growth. Theory of promoting recession: deflation will inhibit economic growth and even make the economy decline. Reasons: ① The continuous decline in prices will reduce the profits or even losses of producers, and then reduce production or stop production. (2) The continuous decline in prices will harm debtors, thus affecting production and investment; (3) If prices continue to fall, production and investment will decrease, which will lead to unemployment, increase residents' income and aggravate the shortage of total demand; (2) Promotion theory: Moderate deflation is beneficial to economic growth. Reasons: ① Deflation will push down the long-term interest rate, which is beneficial for enterprises to invest in improving equipment and increasing productivity. ② Under moderate deflation, the time of economic expansion can be extended without threatening economic stability. (3) If deflation is associated with technological progress and efficiency improvement, the decline of price level and economic growth can promote each other. The income from the redistribution of wealth income in deflation is 1. If the holder of physical assets is damaged, the cash assets will appreciate. 2. Creditors with fixed interest rates gain, while debtors suffer. 3. Deflation reduces corporate profits, and some wealth is transferred to residents; Deflation makes the real interest rate of corporate debt rise, and the income is further transferred to individuals. 4. The transfer of government wealth to the public will aggravate the real debt → the lender will reduce expenses and sell assets → the profit of the enterprise will be reduced, thus reducing the labor cost; Lender's income and asset price will decrease → Lender's real loan will increase and economic demand will decrease (vicious circle begins). From the analysis of basic economic theory, deflation is caused by oversupply and insufficient demand. The positive solution to deflation should be to boost domestic effective demand, supplemented by the government's cooperation to expand public expenditure, thus alleviating the threat of deflation. Generally speaking, moderate deflation is helpful to adjust the economic structure, squeeze out the "bubble" in the economy by intensifying market competition, and also promote enterprises to strengthen technological input and innovation, improve the quality of products and services, which has a positive effect on economic development. However, excessive deflation will lead to a long-term sharp decline in the overall price level, tight money market, slow currency circulation and sluggish market sales, which will affect the enthusiasm of enterprises for production and investment, strengthen the residents' psychology of "buying up but not buying down", affect enterprises' reluctance to invest and residents' reluctance to buy, and limit the effective growth of social demand, which will eventually lead to weak economic growth and a decline in economic growth. From this perspective, deflation has a negative side to economic development. To this end, we must increase government investment to stimulate domestic demand, curb price decline and maintain basic price stability. Deflation, contrary to inflation, means an increase in consumers' purchasing power, but if it continues, it will lead to an increase in debt burden, a decline in investment income of enterprises, passive consumption by consumers, and the national economy may fall into the grim situation of the interaction between falling prices and economic recession, which will become a vicious circle. The hazards of deflation are as follows: prices have fallen, but the liabilities of individuals and enterprises have increased in secret, because the real value of assets held has shrunk, but the mortgage loans of banks have not decreased. For example, when people buy a house through mortgage, deflation may make the value of the property owned by the buyers far lower than the debt they bear. (3) bubble economy: the excessive growth of virtual capital and the continuous expansion of related party transactions are increasingly divorced from the growth of physical capital and industrial sectors, the prices of financial securities and real estate are soaring, and speculative transactions are extremely active. Bubble economy lies in financial speculation, which leads to false prosperity of social economy, and finally the bubble will burst, leading to social shock and even economic collapse. The bubble economy can be divided into three stages, namely, the formation stage, the expansion stage and the collapse stage. There are differences and connections between bubble economy and economic bubble. Economic bubble is a common economic phenomenon in the market. The so-called economic bubble refers to some non-real economic factors in the process of economic growth, such as financial securities, bonds, land prices, financial speculation and so on. As long as it is controlled within a moderate range, it is beneficial to an active market economy. Only when the economic bubble is too much and inflated, which is seriously divorced from the needs of physical capital and industrial development, will it evolve into a false and prosperous bubble economy. It can be seen that bubble economy is a derogatory term, while economic bubble is a neutral category. Therefore, we cannot simply equate the economic bubble with the bubble economy. We should not only acknowledge the objective inevitability of the existence of the economic bubble, but also prevent the economic bubble from expanding excessively and evolving into a bubble economy. In the modern market economy, there are objective reasons for the long-term existence of economic bubbles, which are mainly determined by the duality of their functions. On the one hand, the existence of economic bubbles is conducive to capital concentration, promoting competition, activating the market and prospering the economy. On the other hand, we should also be soberly aware that there are negative elements in the false factors and speculative factors in the economic bubble. Reasons for the emergence of bubble economy: the bubble economy occurred at the stage of relatively loose monetary policy and relatively rapid economic development, and the social economy seemed prosperous on the surface, providing a source of funds for the bubble economy. Commodity economy is characterized by periodic growth. After each round of economic depression, the government often lowers interest rates, relaxes monetary policy, and stimulates investment and consumer demand to start economic growth. Some enterprises and individuals with funds in their hands, the first thing they think of is to invest these funds in resources with potential for maintaining and increasing value, which is the social foundation for the growth of bubble economy. In addition, the institutional profits of the banking industry can earn income from the deposit and loan spreads. The banking industry can get and get benefits in both cases of inflation and deflation, but the coping strategies and income quotas will be different.