(I’m American) Inflation is the rising cost of goods and services. Inflation constantly goes up by varying degrees. When economists say “inflation is decreasing”, that just means that the rate of inflation has slowed, not that inflation reversed.
If inflation is causing money to be less valuable over time, why would it be bad to have deflation? Would that not make my money more valuable? I’ve been told it would be very bad, but not in a way that I understand
In: Economics
Many of these posts are answering from the perspective of the consumer.
But the main reason deflation is bad is because it discourages *producers* from producing.
If I have a business with $1 million in the bank, what I normally do is build $1 million worth of product and sell it for more than $1 million. I make a profit and I use that profit to build more product, paying suppliers and employees along the way, and the cycle continues.
Now with deflation, I build that product, sell it, and I could end up with *less* money than I started with. So why not just keep the money in the bank? Why would I do the work to build my product when I would end up with less money? So instead I do nothing; I don’t buy any raw materials and I lay off employees because they aren’t doing anything. This contributes to a spiral where nothing is happening in the economy, nothing is being produced, and every employer decides the least bad alternative is to put their business on pause and stop paying employees.
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