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?

Maegfaer

Posts

Merits