Tuesday, October 6, 2015

Explore deflation tactfully...

Corporate also demand resources in the market... Lower prices of resources would lower cost thereby more profits... Deflation has not been explored properly since we assume that in the long-run increase in population would increase demand and prices with scarcity of resources... But, the conclusion seems to be reversed with decreasing population growth rate in many developed countries... In the light of this evidence we might conclude that slowing population growth-rate could lower demand and increase supply which could also lower prices and probably deflation... As observed in the US, Japan, Europe... In these developed countries deflation shows that supply-side is not a problem with zero-nominal interest-rates... Economists know that deflation is good for the poor and not for Capitalist... But lower input cost might help save more to invest more for the Capitalist... However, after full-employment prices or inflation might increase because wages could increase to attract labor... Central bank can lower capital-cost to zero to incentivize supply but it can not cut wages unless it cuts real-rates with inflation, but not to zero... Deflation with downward nominal wage rigidity is likely to increase real-wages which is good for demand... Low prices may also increase savings...  

No comments:

Post a Comment

"Everybody is worried about rate cuts and nobody for lower interest rates on savings, when all save and few borrow..."

Growth is sacrificed when the value of the money is sacrificed because spending goes down due to inflation, and people buy less due to high ...