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One issue is the possibility of a deflationary spiral. Deflation decreases output, which lowers wages, which lowers demand, which drives more deflation as price drop. This can stretch on for a long time, and some economists think it's one of the mechanisms that made the Great Depression so bad. Low output essentially compounded on itself through deflationary ...


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Historically deflation is associated with a large negative output gap during, for example, the Great Depression and the Great Recession: https://www.economicshelp.org/blog/glossary/output-gap/ An undesired negative output gap with high unemployment and debt default means the economy performs well below its previous capacity (trend line) for long periods of ...


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First of all it is important to make clear what economists are actually saying. Most economists believe that moderate inflation is better than moderate deflation, while high inflation or deflation would be considered undesirable. This is because both inflation and deflation are examples of price instability and in fact if all markets would be perfect, ...


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