Pros & Cons of Deflation on a Economy

Deflation is a phenomenon in which the general price level of goods and services in an economy decreases over a sustained period. This can occur due to a decrease in demand, an increase in supply, or a contraction of the money supply.

Increased Purchasing Power

 Deflation can increase the purchasing power of consumers, allowing them to buy more goods and services for the same amount of money.

 Increased Savings

Deflation can encourage people to save more money, as their savings will increase in value over time.

Lower Production Costs

Deflation can lead to lower production costs for businesses, as the cost of raw materials and labor decreases.

Increased Debt Burden

Deflation can increase the burden of debt, as the value of debt remains the same while the value of assets and income decrease.

Decreased Consumer Spending

Deflation can lead to decreased consumer spending, as people delay purchases in anticipation of further price decreases.

Increased Unemployment

Deflation can lead to increased unemployment, as businesses cut costs and lay off workers to maintain profitability.