Is deflation a positive or negative phenomenon?

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In most economies of the world,inflationary processes. Many economists tend to think that keeping the economy at a price growth rate of 2-3% is optimal for its development. And only in a few countries is deflation prevailing. This applies to Japan, Bahrain and Belize, where a similar situation has been observed for several years.

deflation is

Of course, inflation itself is consideredA negative phenomenon, especially when its rates exceed this threshold. The money supply is depreciating, the purchasing power of the population, while maintaining consumption, is falling, which encourages people to seek more income. Deflation is the reverse process, the purchasing power of money is growing, prices are decreasing, which, if the current level of consumption remains, gives an increase in savings. From the point of view of the layman, this situation is favorable.

But from the point of view of the state, everything is more complicated: prices are falling, and people continue to buy as much as they used to, so the incomes of producers fall and they go bankrupt. If this does not happen immediately, then sooner or later the market is still saturated. The released funds are carried to banks and make deposits. Banks do not issue loans as superfluous. People eventually cease not only to strive for higher wages, but also stop working altogether, as they can live on interest from deposits. Over time, this situation turns into stagnation, as there is practically no production, the financial system is also collapsing, the economy is not developing. It is believed that it is precisely such consequences that threaten deflation.

deflation economy

Economics is a complex system with numerousmechanisms of self-regulation, which have not yet been studied to the end. Although most economists are inclined to believe that deflationary processes are harmful, it is impossible to call this phenomenon unambiguously negative. It is believed that in the choice between it and inflation, the latter becomes a lesser evil, while balance is impossible.

True, some experts still think thatif the volume of money supply is controlled not by the state, but by economic agents, then both inflation and deflation will disappear. This is possible, albeit difficult to implement. It is difficult to verify this theory, since it is practically impossible to create a suitable site for such an experiment.

The reasons for deflation are seen by most specialists in the high rates of growth in production capacity, as well as in the imbalance of the banking system in

causes of deflation
side of the reduction in lending. In the general case, these processes are usually balanced by inflation. A number of apologists of the deflationary model of the economy believe that its construction is possible in practice, and any understandable difficulties of the transition period are surmountable. True, such a scheme is realized only, perhaps, under the communist system. And whether it is appropriate then to call such a market economy a serious issue.

For the time being, the economic model dominatescontrolled by moderate inflation, and a new generation of economists is brought up with the idea that deflation is a negative process that must be avoided by all means.

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