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Refer to the diagram to the right where a nominal interest rate (the 6-month annualized Treasury rate) and the rate of inflation are plotted Do Homewor most stable? 14
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Careful reading of the given line diagrams is very important. Stability is achieved when the variables exhibit not much fluctuations (remains considerably in the same range) whereas very high fluctuations results into volatility. Deflation or disinflation is referred to the phenomenon in which the price level of the current time period is lower than the price level of the previous time period i.e. price level has fallen (and, often, disinflation arises because of broader macroeconomic problems.)

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