When thinking about problems in the economy, inflation may be one of the most popular topics. However, deflation may be just as damaging, if not, more damaging than inflation. When deflation occurs, the consumer, the government, and the global economy are all effected. Not all deflation cases are negative, but the ones that are negative are the ones that the policy makers have to focus on and try to prevent.
Deflation comes in two different forms. One kind of deflation is malign deflation. Malign deflation occurs as the result of a collapse in aggregate demand. This type of deflation has been linked with a weak economy and continually decreasing prices (Powell, 14). The collapse in aggregate demand causes these things, which then forces the …show more content…
However, as mentioned before, just the opposite may be true. The only time when falling prices are a good thing is when the fall in prices is due to a rise in production or an innovation in technology in the form of benign deflation. If one of these two cases are not the reason for the deflation, then the deflation is harmful to the economy which is why it is called malign deflation. In general, if prices are decreasing, consumers have the tendency to postpone purchasing products. For example, if there is a product for sale, consumers a likely to wait an extra year for the product to be even cheaper. This often happens with TV’s and other household appliances. When this happens, consumer spending is lower, which leads to lower economic growth (Baugh, 77). Some problems experienced when dealing with malign deflation is the increase in real value …show more content…
In countries like the United States, Japan, and European countries, their policy makers have been focusing their discussions on monetary policy around deflation and what steps they can take to avoid it. These countries have found five various models that help forecast the possibility of deflation up to six months in advance (Iqbal, 211). When countries are aware of the risk of deflation, they can try to prevent it by making changes to the monetary policy. However, if the deflation is benign, no changes would be
Deflation comes in two different forms. One kind of deflation is malign deflation. Malign deflation occurs as the result of a collapse in aggregate demand. This type of deflation has been linked with a weak economy and continually decreasing prices (Powell, 14). The collapse in aggregate demand causes these things, which then forces the …show more content…
However, as mentioned before, just the opposite may be true. The only time when falling prices are a good thing is when the fall in prices is due to a rise in production or an innovation in technology in the form of benign deflation. If one of these two cases are not the reason for the deflation, then the deflation is harmful to the economy which is why it is called malign deflation. In general, if prices are decreasing, consumers have the tendency to postpone purchasing products. For example, if there is a product for sale, consumers a likely to wait an extra year for the product to be even cheaper. This often happens with TV’s and other household appliances. When this happens, consumer spending is lower, which leads to lower economic growth (Baugh, 77). Some problems experienced when dealing with malign deflation is the increase in real value …show more content…
In countries like the United States, Japan, and European countries, their policy makers have been focusing their discussions on monetary policy around deflation and what steps they can take to avoid it. These countries have found five various models that help forecast the possibility of deflation up to six months in advance (Iqbal, 211). When countries are aware of the risk of deflation, they can try to prevent it by making changes to the monetary policy. However, if the deflation is benign, no changes would be