Which is better for the Economy, Inflation or Deflation?

Inflation is the product of economic boom. During inflation, the spending power goes up and this directly increases the price of commodities and eventually erodes the value of currency as there is a lot of money in circulation in the economy during inflation. To address this the government cuts down the public expenditure and creates credit crunch by being very strict in giving away business loans.

Deflation is the product or the sign of economic recession. During recession the people cut down the expenditure and this leads to decreased circulation of money in the economy. During recession the spending power goes down and the price of the commodities also decrease and the economy goes into gloom. To address this issue the government increases the public expenditure (builds more social infrastructure such as road, bridges etc) and creates more jobs which in turn will increase the money circulation in the economy. Also at this stage the government will be very liberal in giving out loans to business to increase the circulation of money.

Neither of these are good for the economy. The governments aim to strike a perfect balance.