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Answer:
Assume that you and nine other people are stranded on an island. Each of you have one dollar and each of you produces one product during your stay on the island. You next sell your products to respectively other. The average price of each product will be one dollar.

If someone finds ten one dollar bills buried within the sand before long the average price will be in motion up to $2.00 for each item, since in attendance is now $20.00 within circulation but only 10 items available. The money supply have increased but number of products stays the same so this is inflation (prices be in motion up).

If on the other hand ten more items are built instead of finding the money. This time the average price of respectively item will drop to 50 cents because the number of items went up but the money supply stayed alike (20 items and $10.00). This is deflation; things get cheaper (producing things is deflationary). The converse is also true destroying things is inflationary.

If someone destroyed half the items on your island you would ruin up with 5 items and 10 dollars or an average price of $2.00 again. Thus inflation can come from increasing the money supply or decreasing the number of commodities available. So even though it seems counter-intuitive the destruction of thousands of houses is if truth be told inflationary.

On the other hand the destruction of thesis assets like surrounded by a stock market crash is deflationary. Stocks prices aren’t really assets because they are in recent times numbers on a piece of paper and so are simply another component within the money supply. Therefore if your stock goes from $10 to $1 you are poorer and it decrease the money supply. Thus it is deflationary. It has not artificial the state of the actual company, it is still producing the same number of widgets as beforehand the crash.

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