The Economists... (*Rev.)

The Economists generally regard higher prices as a sign for the economic activity, but especially in a liquidity trap, when the interest rate refuses to bounce back in order to increase or reward savings, because without savings investment is not possible.  


* However, lower prices due to lower borrowing cost could also increase real wages savings and investment and demand, consumption, too, and supply and growth and expectations.

People demand or hoard money and reduce spending, when they see or feel higher prices that increase supply and reduce demand and expect lower prices ahead, which increase demand and spending, if everybody is employed and has an income which has not gone down, because real wages and incomes would increase. 

Otherwise, they (economists) admit that lower prices and interest rate are good for economic activity or expansion and financial stability ie that goal of economic policies, full employment and stable price level, everybody accepts that lower prices increase demand and supply if real wages, incomes and profit increase. 

We think that lower prices reduce supply, but forget that law of supply says that higher supply lowers the price level, the combination, which increases demand and price and expectations, 

More specifically volatility is imminent in the case of data gap and ineffective demand and supply management with half informed economic policies, 

Excess demand leads to higher prices and increase supply, which often leads to excess supply and lower prices, the economy moves between excess demand and excess supply in the absence of reliable data and information (asymmetry). 



And, more importantly on the future or expected demand and supply data from an investors or agents or subjects interest point of view…….

Nonetheless, higher inflation and inflation expectations after full employment and higher interest rate and expectations increase deleveraging and cut back on investment resulting in lower investment spending and consumer spending, too, which could turn into recession, if, there is a sudden increase in inflation and interest rate and expectations. 

Nonetheless, higher interest cost could also be a reason for lower supply and demand and lower price and price expectations, which could delay spending

i think Paul is trying to make a simple point, here, that trade increases the production possibility frontier for the economy to produce more and consume more (globally, too)... However, higher production and lower prices (or cost) could increase real wages, incomes, profits... or vice versa....