What Is Meant By Deflation And Its Effects?


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Muhammad Abdullah786 Profile
Deflation is just the opposite of inflation. Deflation is said to exist when there is a persistent downward movement in the price level. Deflation, therefore, can be called falling prices and not low prices. if in a particular year, price level rises by 2% falls by 3% in the following years, again rises by 2 ½ %next year and falls 3% in a fourth year, it will not be case of inflation and deflation. Inflation has already been defined as persistent and appreciable rise in the general level of prices. Similarly, if there is persistent and appreciable fall in the general level or average level of prices, it will be recognized as a genuine deflation.

The effects of deflation are:
Over production;
When prices are falling, the producers buy material and other inputs at higher prices and are forced to sell the products at lower prices. it eventually results in over production of commodities.
Traders lose:
During deflation, the trader purchase goods at higher prices and had to sell later on at lower prices due to deflationary trends. They thus, lose in the bargain.
Investing class:
The equity holders lose during deflation and debentures holders gain when prices fall.
Fixed income groups:
The pensioners, wage earners, gain during deflation as the wages, pensions etc do not decrease with fall in prices.
thanked the writer.
Anonymous commented
Anything that has a good part has a bad part i see deflation is the best solution to nigeria's problems i mean too much money chasing fewer goods wat do you think

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