Inflation increases
when wages and income and demand increase after full-employment which
constrains domestic supply... And, when demand outstrips supply it is
controlled by raising interest-rates... But, in Japan inflation is down...
Full-employment shows that demand is not a problem... Then we might expect
supply to be responsible for low prices... But, lower prices may not be
sufficient to attract demand... money-supply is important to increase wages and
demand... actually, real-wages and income... Japan's low real wages are a major
reason for low demand... Actually, it has cut wages to make the economy
competitive... But, domestic competitiveness, lower prices has been neglected
by adopting inflation targeting... People in Japan might think that inflation
would go up so they save more for future... Nonetheless, if people expect that
prices would go down they might save less today... Nevertheless, economists
argue that lower prices or deflation would delay spending, but lower prices are
an opportunity to buy soon and not delay because supply is limited...
Therefore, deflation is an opportunity to buy now and not delay... If
policy-makers commit deflation instead of inflation people might save less and
spend more... Deflation would increase real-wages... Increasing money-supply
may not be important... Real wages might go up without increase in money-supply
because prices would go down...
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