This thing what i thought to be only my stand on deflation and falling
prices but it turned out to be “Pigou-effect” which students are taught during
studies. I have also studied it in my (incomplete) PG but forgot what it says
but when i read “real cash balances” it was not difficult to recapture by the
meaning…
Any ways, Pigou-Effect is materialized when prices fall
(it’s a deflation) to establish or restore full employment. When prices fall
the value of the cash balances people are holding increases in value because
they, now, can purchase more with the same quantity of money. The “real” value
of money increases.
I added that we
should float a lower re-denomination of any currency to increase the space in which prices can
fall. And (thought) the US
could’ve gained from deflation and falling prices…
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