Deflation is seen by economists as a threat to economic growth as falling prices undermine aggregate demand as consumers hold off purchases in anticipation of lower prices. However, deflation is simply the mechanism by which equilibrium is restored amid the reduced availability of money or increased availability of goods due to economic growth. Depending on…
The inflation/deflation debate boils down to whether the surge in government bond issuance and money printing will continue to be offset by an even greater increase in money hoarding. The rise in the ratio of money supply to GDP (so-called declining velocity) reflects a rise in potential inflation rather than an argument for deflation. The…
Intro: From an individual perspective, saving and hoarding can appear to be the same thing, but for the economy as a whole they are very different. Hoarding is the increase in willingness to hold money as a store of value. Saving is a measure of real resources in the economy that are used in the…
Intro: Economists fear deflation for reasons that go completely against the basics of economics. Prices fall during times of falling money supply growth, high real GDP growth, or increased hoarding. In any case, the decline in prices is the market’s way of increasing the purchasing power of money to ensure that output itself doesn’t decline. …
Intro: Lower interest rates tend to create upward pressure on inflation as they encourage greater bank lending, increase the incentive to spend money rather than hoard it, and discourage people from holding the currency as an investment. That said, given the multitude of forces at play, rate cuts are far from guaranteed to generate high…