Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down
What do you mean? Historically and logically that's how it works. Economics concepts are like physics, they are connected and logical. Deflation doesn't just happen in a vacuum, it's caused and affected by other things. Simply:
In the Great Recession a lot of people lost their jobs or got pay cuts, reducing available money to spend. This reduced demand, which drove prices down.
As a direct example, things like taxes on the rich that are larger than spending, combined with using some of that spending on things that have lots of jobs, like building high speed rail.
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u/StuartMcNight 9h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?