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In an economy dominated by debt-fueled asset price bubbles, deflation can lead to a temporary financial crisis and a period of liquidation of speculative investment known as debt deflation.
Deflation is when consumer and asset prices decrease over time, and purchasing power increases. Essentially, you can buy more goods or services tomorrow with the same amount of...
Deflation is often bad for investments since it draws money into cash, since said cash will be worth more tomorrow than today for sure, while an investment might go boom. That being said, sufficiently high productivity grown can be deflationary.
One argument for why deflation is harmful is that it puts a floor under the real (or inflation-adjusted) interest rate—that is, the real interest rate is higher than the nominal interest rate in a deflationary environment.
The problem with deflation is that often it can contribute to lower economic growth. This is because deflation increases the real value of debt – and therefore reducing the spending power of firms and consumers. Also, falling prices can discourage spending as consumers delay their purchases.
Deflation, or negative inflation, happens when prices fall in an economy. The supply of goods may be higher than the demand for those goods, but the buying power of money may be...
Bad deflation occurs when aggregate demand falls faster than any growth in aggregate supply. Negative money shocks, like what happened during the Great Depression, create...
Deflation is a widespread and sustained drop in prices across the economy. Occasional month-to-month drops in consumer prices don’t count. The United States hasn’t seen genuine deflation since ...
Deflation occurs when the prices of goods and services fall. Deflation expectations make consumers wait for future lower prices. That reduces demand and slows growth. Deflation is worse than inflation because interest rates can only be lowered to zero. Innovation can cause good deflation.
New York CNN — After encountering rapid price increases for more than two years, discounts at some stores would certainly feel like a much-needed respite. But business leaders, economists and...