Tuesday, August 03, 2010

Why Is Deflation Bad?

I summarise the article written by Paul Krugman into 3 points as to why deflation is bad.
  1. When people expect falling prices, they become less willing to spend, and in particular less willing to borrow.

  2. Falling prices worsen the position of debtors, by increasing the real burden of their debts.

  3. Wages as well as prices often have to fall.

Money just need to flow around for economy to function healthily.

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