Why is deflation bad?

Deflation is very bad for the economy of a nation. Deflation happens due to falling prices which is the result of lower spending by consumers. This impacts the economy because it is one of the major components of economic growth. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

When there is a fall in prices, the companies will start reducing production. When there is reduction in production, there will be reduction in salary of the employees and even lead to layoffs. Hence deflation indicates that a nation’s economy is getting weaker.

Further readings:

  1. Inflation Targeting: Methods, Drawbacks and Benefits
  2. Indian Economy Notes For UPSC Exam [Download PDFs]

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