Quote from: Maegfaer on March 05, 2015, 09:55:37 PM

Quote from: picolo on March 05, 2015, 08:41:38 PM

deflation happens during a drepression and when there is a lack of demand so it is sometimes associated with it but it is a consequence of the lack of demand not a cause.

Yes, but it's not the only possible cause. It's also possible to have deflation due to an increase in aggregate supply. Then it's benign deflation. So whether deflation is good or bad depends on the underlying cause of deflation. Obviously a collapse in aggregate demand is bad.

The relevant questions concerning this topic are:

In the current economic system, can central banks effectively combat deflation due to collapses in aggregate demand? Are quantitative easing and zero/negative interest rate policies real solutions or does it just kick the can down the road?
What are typical causes of collapses in aggregate demand?
In an economy with a fixed supply of money, is a continued collapse in aggregate demand (deflationary spiral) inevitable?

In the current economic system, can central banks effectively combat deflation due to collapses in aggregate demand?

Don't know what you mean by the current economic system (there are many in this context), but yes, they can, provided the economy you refer to is not built on debt. Otherwise, they can try to "restart" the economy through effectively writing off the existing debt (what they seem to be doing).

What are typical causes of collapses in aggregate demand?

There is a story of economic cycles, the longest of which (but not limited to) are associated with the so-called technological paradigm shifts (e.g. transition from manual to mechanized labor).

In an economy with a fixed supply of money, is a continued collapse in aggregate demand (deflationary spiral) inevitable?

Not necessarily, it also greatly depends on the money velocity, the increase in which can potentially make up for the decline in the aggregate demand. Though this doesn't happen in reality.