Deflation

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    Deflation

    • Deflation arising from the supply side can be beneficial
      • A fall in the price level as a result of a decrease in the costs of production will enable consumers to buy more goods and services, and increase the country’s international competitiveness.
    • Deflation caused by a fall in AD may result in a deflationary spiral
      • This lower AD means that firms make less money, so more people become unemployed
      • This means that people spend less, which further reduces AD, which repeats the cycle…

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