Deflation

Deflation:

Crowther, states deflation as a “state in which the value of money is increasing, that is, prices are falling”. Both inflation and deflation refer to the movement of prices. Deflation is the conflicting of inflation. Usually inflation is a period characterized by increasing activity and employment. However during deflation, there will be awful trade and unemployment. Throughout deflation, as prices fall faster than costs, there will be serious losses for producers and businessmen. There will not be gains in any branch of economic activity. Therefore there will be a drop in investment. This outcome in unemployment. Both deflation and inflation are evils. There is nothing much to select among them. While increasing prices can be checked to some level by the monetary policy of the government, the later is of little aid in raising the price level throughout deflation. This does not work. That is why during such periods; current economists recommend that the State should play an active role in the economic field and step up economic activity by undertaking a sequence of public works programs. “Wage-cut” is at times suggested as a remedy for depression. However it is not a right solution. It will only make matters inferior.

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