deflation spiral group 3

7/28/2019 Deflation Spiral Group 3

1/16

Deflationary Spiral :How it affects business ?

Group Members:

Akhil

Naveen

Nithin

Parvathi

Pritika

SurejYadhav

Gayathri

Dona

1


2/16

Inflation hurts, but Deflation could be worse2


3/16

3


4/16

Introduction

Economic occurrence where the inflationrate is negative and continuing to decrease.

Occurswhen prices and wages drop and slows inflation due

to lower demand (and therefore, lower production).

Supply of money usually decreases, leading to astronger currency that would fuel even lower prices andwages, thereby creating a chain of events.

Deflationary spirals are often viewed negatively becausethey generally occur in recessionary times and tend toworsen the recession.

4


5/16

During deflationary times, money increases in its "buying" or

"purchasing" power, and it takes less units of currency to

purchase the same units of goods or services.

Over time, deflation increases the value of each unit of

currency.

Many economists regard deflation as more dangerous than

inflation.

It prompts consumers to delay purchases as they wait for

lower prices, creating a downward spiral of lower demand and

d ti

What happens during deflation

?

5


6/16

Causes of deflation

Capitalism characterized by sufficient existence ofcompetition.

Decrease in the money supply.

Increase in the supply of goods.

Fall in the demand for goods.

Escalation in the demand for money.

6


7/16

Example: Japan Crisis

Deflation started in the early 1990s.

The Bank of Japan and the government

tried to eliminate it by reducing interestrates and 'quantitative easing.

Deflation persisted till 2006.

7


8/16

8


9/16

Causes for deflation in Japan

Tight monetary conditions.

Unfavorable demographics.

Fall in asset prices.

Insolvent banks.

Imported deflation.

9


10/16

How Deflation affects Business?

If deflation persists, businesses may shut down orreduce their production.

As a result, unemployment may increase and wagerates may fall.

The spiralling effect of deflation on prices and wagesmay create pessimism, and the economy could fallinto a recession.

Unfortunately, this leads to less production atfactories, less investment and a so-calleddeflationary spiral.

10


11/16

Many individuals and businesses are choosingto pay down debt rather than spend.

When owners and people believe that they areresponsible, they actually slow down theeconomy by not spending or expanding theirworkforce.

This process tends to run in a loop, where aconsumer will pay down debt rather than spend,and a business will see its sales decline forcingit to layoff workers who will not spend, reducingthe wealth of business further

If deflation persists, businesses will not invest innew ventures.

11


12/16

Measures to Control Deflation

1. Reduction in Taxation

2. Redistribution of Income

3. Repayment of Public Debt

4. Subsidies

5. Public Works Programme:

12


13/16

6. Deficit Financing

7. Reduction in Interest Rate

8. Credit Expansion

9. Foreign Trade Policy

10. Regulation of Production

13


14/16

Conclusion

While inflation erodes the value of money, whichprogressively buys less and less per unit, deflation makesmoney worth more.

This makes people and businesses less likely to spend it .Consumers because they expect even better deals if they

wait, and businesses because its less profitable to producegoods or services that will bring a lower real return.

These factors can feed on each other to produce adownward economic spiral, as happened in the GreatDepression.

Deflation, the falling of prices throughout an economy, isnot a good thing. It only enters the picture in bad times, asa threat to make things worse.

14


15/16

References http://www.epw.in/global-economic-and-financial-crisis/what-driving-global-

deflation-and-how-best-fight-it.html

http://www.epw.in/commentary/deflation-devaluation-and-employment.html

Http://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.html

http://www.epw.in/commentary/implosion-japanese-capitalism.html

http://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htm

http://www.preservearticles.com/201012281832/control-of-deflation.html

http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/

15
http://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/http://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://www.preservearticles.com/201012281832/control-of-deflation.htmlhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://economics.about.com/b/2007/12/03/is-deflation-necessarily-a-bad-thing.htmhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/commentary/implosion-japanese-capitalism.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/special-articles/japanese-economic-recovery-and-macroeconomic-policy-mix.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/commentary/deflation-devaluation-and-employment.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.htmlhttp://www.epw.in/global-economic-and-financial-crisis/what-driving-global-deflation-and-how-best-fight-it.html


16/16

THANK YOU16

deflation spiral group 3

Documents