Rise Fall
25
Nov/090
Nov/090
Rise Fall
Will Deflation cause aggregate demand for Real GDP to rise or fall?
Will Deflation cause aggregate demand for Real GDP to rise or fall and why?
Wrong, it can't go up because deflation is a collapse in aggregate demand.
Historically deflation is correlated with GDP, that is GDP falls. The theory that predicts that in will increase aggregate demand assume wages remain constant, but that is not true in most the period we have experienced deflation. In fact deflation is considered so harmful to the economy that it a major objective of monetary policy to prevent deflation.
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