Instructions: Please watch the video in the website link http://finance.yahoo.co
ID: 2655607 • Letter: I
Question
Instructions: Please watch the video in the website link http://finance.yahoo.com/video/deflation-risk-becomes-deflation-fact-121240577.html as the title of the video is "Deflation Risk Becomes Deflation Fact for Fed." Then after watching, answer the following question by writing a paragraph of 15 sentences and back up your responses with material from your text or the financial press by putting in-text citations from a newspaper article source or The Financial Times. Be sure to correctly cite your references.
Are the current conditions conducive to deflation or should we still be concerned about inflation?
Explanation / Answer
Answer:Deflation is now a concern thanks to the events of previous years."The driver behind this deflation (is) a collapsing credit bubble. Debt and credit is collapsing faster than the government can re-inflate, which is what causes cash to increase .
Deflation is an economic phenomenon characterized by a general and persistent broad- based decline in prices over time. Deflation becomes a concern when an economy experiences low or negative levels of growth. The variety of prices affected by deflation can include services, energy and non-energy industrial goods. It generally occurs during periods of high unemployment, industrial overcapacity, stagnant wages and falling labor costs. High unemployment leads to lower aggregate consumer demand for goods and services. As demand decreases, businesses generally lower their prices of goods and services. Over time, lower prices can result in less cash flow and profits for companies who then are inclined to reduce or postpone hiring and initiate layoffs.
Deflation is different from disinflation or stagflation. Disinflation represents a decline in the rate of inflation. Decreases in the rate of inflation are the result of slowdowns in the business cycle or the rate of growth in the money supply. Stagflation is the coupling of low growth and high inflation. Random shocks to the economic system can cause prices to rise.