In: Economics
elect an article on an economic topic from a major newspaper or business journal (e.g., The Economist, Wall Street Journal, New York Times) dated within the previous two months and analyze the issue using the economic concepts and theory learned in class. Possible topics in-clude: • Quantitative Easing • Money supply • Monetary policy • Janet Yellen • Inflation Control • Deflation • Raising interest rates The paper should begin with a concise summary paragraph that (1) states the prob-lem/issue/topic you have selected and (2) summarizes your position on the topic, anticipating your conclusion. The remainder of the paper should explain and support your position.
DEFLATION
Deflation is basically lack of aggregate demand in an economy. Lack of aggregate demand leads to lack of production and asluggish economy. Deflation basically occurs when the aggregate demand does not rise. Thus the producers do not invest much on production and as a result production also decreases. This leads to a reduction in level of employment. Thus we find that deflation leads to increase in unemployment in the economy. Deflation leads to a slow movement of the economy with low productivity and sluggish behaviour. A prolonged deflation makes the economy prone to recession. Due to massive unemployment caused due to deflation, the standard of living of the people in the economy also reduces.
To overcome deflation, the government must take some effective fiscal measures such as reducing Taxation and increasing government expenditure, so that spirit of consumption can be promoted in the economy and the people increase their consumption and thus demand increases. The central bank must also take some expansionary monetary policy by increasing the money supply so that the aggregate demand in the economy can be boosted. A boost in aggregate demand will increase investment and productivity in the economy. This will also help in increasing the level of employment in the economy.