What are the effects of deflation on the economy?

What are the effects of deflation on the economy?

Deflation can lead to decreased consumer spending, as people anticipate lower prices in the future. This can slow economic growth.

How does deflation affect employment rates?

Deflation can increase unemployment rates, as businesses may cut costs by reducing their workforce in response to falling prices.

Are there any positive effects of deflation?

Yes, deflation can increase purchasing power for consumers, allowing them to buy more with the same amount of money.

What measures can governments take to combat deflation?

Governments can lower interest rates, increase public spending, or implement quantitative easing to stimulate the economy and combat deflation.

Can deflation lead to a recession?

Yes, prolonged deflation can lead to a recession as it creates a cycle of reduced spending and investment.