Deflation Definition, Causes, Types, And Impacts Deflation

ECONOMY, ACTIVELYSHARE.COM — Every sector in any country must have its own problems, including the economic sector. There is one problem that cannot be separated from the economic world, namely deflation.

For some people, the phenomenon of deflation will make the prices of goods and services in the market decline continuously for a certain period of time until people are happy. But behind the fun, there is something else threatening.

At first glance, deflation appears to be profitable as goods and services become more affordable. It is also considered to be able to save expenses. In fact, if deflation is too sharp or continuous, it will harm trading and buying and selling activities.

Because the decline in the price of goods and services due to deflation more often causes producers or service providers to suffer losses as a result of their inability to cover production costs or operational costs.

What Is Deflation Definition?

For most ordinary people and those who are not involved in the world of economics, the term deflation sounds quite foreign compared to its opposite term, namely inflation.

Although it has been discussed quite often in many electronic mass media and online, but that doesn’t mean that citizens and the public understand deflation in its entirety.

Deflation is a condition when the price of goods in a country decreases. The decline in the price of these goods can occur periodically, directly or simultaneously. This of course has an impact on the economy.

At first glance, this would probably benefit a lot of people. People who like to shop can immediately shop in large quantities. When this happens, generally people will immediately spend a lot of things that are needed by these people.

In reality, deflation is not a good thing from an economic point of view because it can lead to chaos. Such conditions must be addressed immediately so that the stability and balance of the country’s economy is not disturbed.

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Causes Of Deflation

Decreasing The Amount Of Money Circulating In Society

This was initially caused by high bank interest rates so that people were interested in saving in banks. As a result, there is less money in circulation.

This incident occurred when people began to have awareness to save and were reluctant to spend their money. As a result, there are no buying and selling activities carried out by the country.

Even if there is such buying and selling activity, the amount cannot be said to be large. This causes the amount of money circulating in the market is less than that stored in banks.

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