Deflation Blessing or curse

Deflation is the state of decrease in the general price of any goods or services. It occurs in the economy due to the annual fall in the inflation rate less than 0%. It results in the increase in the purchasing power of general public. Due to inflation the real monetary value increase increasing the capacity of people to buy goods without increase in their real income. It is contrary to inflation, where the real money value increases. During the time of deflation the purcahsing power of people of low income or fixed income will increase rapidly where as the people with fluctuating income (business man) will suffer very much.

Now-a-days economists believe that in modern economy deflation causes decrease in the price of goods which leads to decrease in the production of goods(level of production). This results to the situation of decrease in the wage rate and decrease in the demand of labour. In short we can conclude that deflation is caused due to the decrease in the general price level resulting in the decrase of the production and decrease in the employment level in the labour market.

Some negative impact of deflation are

• Increase in crime
• Decrease in production
• Decrease in no of investors
• Decrease in production company
• Decrease in the level of employment int he general employment level
• Instability in the economy
• Discouragement prevails
  

A good example of the depretion is the great Depretion of USA (1929-1930) during which the level of employment and price of goods were so much decreased that many of the production companies had closed down resulting in the creation of unemployment increase upto 25% where as in other countries it reached about 33%, Price level of crop decreased upto 60%. As we can clearly seen the chart that unemployment how increased and reached above 20% during the time of deflation and after the state of deflation how unemployment decreased up to 5%.