Economics: Deflation In The United States
In economics, deflation is a sustained decrease in the general price level of goods and services.[1] Deflation occurs when the inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive).[2] Inflation reduces the real value of money over time, conversely, deflation increases the real value of money.
Most economists believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral. Deflation is also linked with recessions and with the Great Depression. Additionally, deflation also prevents monetary policy …show more content…
|Contents |
|[hide] |
|1 Effects of deflation |
|2 Deflationary spiral |
|3 Causes of deflation |
|4 Counteracting deflation |
|5 Examples of deflation |
|5.1 United Kingdom |
|5.2 Deflation in the United States |
|5.2.1 Major deflations |
|5.2.2 Minor deflations |
|5.3 Deflation in Hong Kong |
|5.4 Deflation in Japan |
|5.5 Deflation in Ireland …show more content…
Since deflation discourages investment and spending, because there is no reason to risk on future profits when the expectation of profits may be negative and the expectation of future prices is lower, it generally leads to, or is associated with a collapse in aggregate demand. Without the "hidden risk of inflation", it may become more prudent just to hold onto money, and not to spend or invest it.
Deflation is, however, the natural condition of hard currency economies when the rate of increase in the supply of money is not maintained at a rate commensurate to positive population (and general economic) growth. When this happens, the available amount of hard currency per person falls, in effect making money more scarce; and consequently, the purchasing power of each unit of currency increases. The late 19th century provides an example of sustained deflation combined with economic development under these
Most economists believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral. Deflation is also linked with recessions and with the Great Depression. Additionally, deflation also prevents monetary policy …show more content…
|Contents |
|[hide] |
|1 Effects of deflation |
|2 Deflationary spiral |
|3 Causes of deflation |
|4 Counteracting deflation |
|5 Examples of deflation |
|5.1 United Kingdom |
|5.2 Deflation in the United States |
|5.2.1 Major deflations |
|5.2.2 Minor deflations |
|5.3 Deflation in Hong Kong |
|5.4 Deflation in Japan |
|5.5 Deflation in Ireland …show more content…
Since deflation discourages investment and spending, because there is no reason to risk on future profits when the expectation of profits may be negative and the expectation of future prices is lower, it generally leads to, or is associated with a collapse in aggregate demand. Without the "hidden risk of inflation", it may become more prudent just to hold onto money, and not to spend or invest it.
Deflation is, however, the natural condition of hard currency economies when the rate of increase in the supply of money is not maintained at a rate commensurate to positive population (and general economic) growth. When this happens, the available amount of hard currency per person falls, in effect making money more scarce; and consequently, the purchasing power of each unit of currency increases. The late 19th century provides an example of sustained deflation combined with economic development under these