Is deflation bad for an economy ?

Question

i read some where that deflation is bad for a country in long term. before reading that i always had though that deflation is like an ideal thing for a country and its people will be very happy that prices of every things have gone down now and now they can buy all those things that they couldn't before.

Pease somebody tell me the answer in very easy language as i really can't understand complex economics terms and my english is not brilliant aswell.

Answer 1

Both inflation and deflation are bad. We want stability in prices, that way we know from one day to the next the value of our pay and the value of products and services. Think of your body weight, if I told you that weight stability was the recipe for health, then you wouldn't want to have an increase in your weight (inflation) nor a decrease in your weight (deflation). Long term sustainable growth in an economy is achieved through true price stability.

Answer 2

Deflation is actually much worse for an economy than inflation.

When deflation affects a country, prices fall. As a result, firms will usually try to cut costs to keep their profits from falling as well. This usually means layoffs (cutting jobs) or cutting wages.

When people are out of work (or have less money), they don't spend as much money. So they're buying less, and companies sell less. Companies want to sell more, so they lower prices. To lower prices, they cut costs. To cut costs, they lower wages and lay off workers! It's a big circle (a "deflationary cycle").

The biggest problem with deflation is that if consumers begin to believe that there will be deflation in the future, they will stop buying things today - because tomorrow their money will be worth more, and next year their money will be worth even more. Instead of buying a new car today, they'll wait a year and watch the price fall.

It's a very scary concept for governments, which is why in the United States and Canada the central bank will not let inflation fall below 1.0%. The last time deflation seriously affected the West was in the 1930s - the Great Depression had a deflationary spiral. However, there's a more modern example: Japan in the 1990s suffered from deflation so bad that at one point, banks were charging money instead of paying interest, just to convince consumers to spend their money!

Answer 3

You read some questionable information.

A deflation is not necessarily bad or good but I think any prolonged economic cycle usually reaches a negative point eventually.

Deflation usually does not last for several consecutive years because the lower prices will allow more buyers into the market, getting more money into economic circulation. Demand for products will rise, and eventually with the rise in demand will come a rise in price.

Also deflation has a negative short-term impact in that people's investments become devalued, such as stocks or real estate. Considering home ownership is a major portion of many people's investment portfolio, any reduction in value here is generally not so good for an economy.

Answer 4

The ideal economy has a very slow and stable but positive rate of inflation. Deflation cannot be sustained under normal circumstances without recession.

Here's why: lower prices will lead to lower profits, lower profits lead to lower wages, and then lower wages lead to still lower prices, back to the beginning over and over in a vicious circle.

If inflation is positive but very slow, the most competitive firms will still find a way to make a profit and pay good enough wages that workers will be able to keep up with the rise in prices. That's the basic theory anyway.

Your English is far better then many people on here! Let me know if you need any further explanation.

Answer 5

It relies upon. The deflation that happened in the process the 1930's became undesirable deflation. This deflation became led to via loss of call for. there's a stable deflation led to via the quantity/progression of productions. as an occasion, television, cellular telephones, etc. They develop in attractiveness, however the fee of them decreases.