The impact of deflation in the new economy, which is characterized by deflation

The impact of deflation on economic growth.

1. Promotion of withdrawal: Deflation will inhibit economic growth and even cause economic recession.

Reason: A sustained decline in prices will reduce or even lose producers' profits, which in turn will reduce production or stop production.

A sustained decline in prices will hurt debtors, which in turn will affect production and investment.

Prices continue to fall, and a decrease in production and investment will lead to increased unemployment, a decrease in household income, and an exacerbation of the shortage of aggregate demand.

2. Promotion theory: Moderate deflation is conducive to economic growth.

Rationale: Deflation will lead to a decline in long-term interest rates, which will help companies invest in improving equipment and increasing productivity.

Under a moderately deflationary state of flux, the duration of economic expansion can be extended without threatening economic stability.

If deflation is linked to technological progress and improved efficiency, then the decline in the price level and economic growth can promote each other.

Deflation refers to the decrease in the amount of money, the increase in the value of money, and the decline in inflation, so that the economy enters a state of low inflation and low growth. Deflation will have a series of effects on the economy, the most important of which are:

First, economic growth has been affected. Deflation leads to a rise in the value of money, a decrease in purchasing power, a decrease in consumer spending, and a decrease in business investment, which leads to a slowdown in economic growth.

Second, deflation will lead to an increase in unemployment. As consumer spending decreases, business investment decreases, and business production activities decrease, resulting in an increase in unemployment.

3. Deflation leads to a decrease in the inflation rate. As the amount of money decreases, the value of the currency rises, which leads to a decrease in inflation.

Fourth, deflation leads to higher interest rates. As the amount of money decreases, the value of money rises, which in turn increases interest rates, which in turn reduces corporate investment and slows economic growth.

5. Deflation leads to changes in currency exchange rates. As the amount of currency ** decreases, the value of the currency rises, which causes the exchange rate of the currency to change, thus affecting the international**.

Sixth, deflation will lead to a decrease in fiscal revenue. Due to the decrease in consumer spending, business investment decreases, which leads to a decrease in fiscal revenue, which affects the fiscal policy of **.

The harms and consequences of deflation are:

First, economic growth has been affected. Deflation leads to a rise in the value of money, a decrease in purchasing power, a decrease in consumer spending, and a decrease in business investment, which leads to a slowdown in economic growth.

Second, the unemployment rate has risen. As consumer spending decreases, business investment decreases, and business production activities decrease, resulting in an increase in unemployment.

Third, fiscal revenue decreased. Due to the decrease in consumer spending, business investment decreases, which leads to a decrease in fiscal revenue, which affects the fiscal policy of **.

4. Changes in currency exchange rates. Due to the decrease in the amount of currency, the value of the currency has risen, which will cause the currency exchange rate to change, thus affecting the international **.

Fifth, interest rates are rising. As the amount of money decreases, the value of money rises, which in turn increases interest rates, which in turn reduces corporate investment and slows economic growth.

6. Social instability. Due to the rise in unemployment, the decrease in income, social instability, and the intensification of social contradictions, social security has been affected.

In short, deflation will have a series of effects on the economy, the most important of which are economic growth affected, unemployment rising, fiscal revenue decreasing, currency exchange rate changes, interest rate increases, social instability, etc.

Negative effects of inflation: Generally considered: Impact on economic development.

Inflationary prices distort the signal, easily lead producers astray in production, lead to the blind development of production, cause abnormal development of the national economy, and deform the industrial structure and economic structure, thus leading to the imbalance of the proportion of the entire national economy. When the deformity of the economic structure caused by inflation needs to be corrected, the state will inevitably adopt various measures to curb inflation, and as a result, production and construction will drop sharply and the economy will shrink, so inflation is not conducive to the stable and coordinated development of the economy. Impact on income distribution.

The inflationary depreciation of the currency has caused the living standards of some residents with lower incomes to continue to decline, making it difficult for the vast number of residents to improve their living standards. When inflation persists, it has the potential to cause social unrest and instability. Impact on foreign economic relations.

Inflation will reduce the export competitiveness of domestic products, cause an outflow of foreign exchange reserves, and thus depreciate the exchange rate.

Positive impactIt can alleviate the influx of external liquidity, alleviate the asset bubble crisis (interest rates are low during inflationary periods, and foreign funds are generally reluctant to flow in) and reduce tax revenues for the country.

Both deflation and inflation are pathologies in the monetary field, but deflation is more harmful to economic development than inflation. First, deflation accelerates recessions. As the price level continues to fall, people will inevitably become pessimistic about the economy and hold on to the currency, which will further shrink consumption and investment and accelerate the economic recession.

Second, the decline in prices will cause real interest rates to rise, enterprises will not dare to borrow and invest, the burden on debtors will increase, profits will decrease, and in serious cases, enterprises will lose money and go bankrupt. Due to the recession of business operations, it is difficult for bank loans to be timely, a large number of bad debts appear, and it is difficult to find profitable good projects, and there will be difficulties in operation, and even face the risk of "financial panic" and a run on depositors, which will cause bank bankruptcy and make the financial system face collapse. Third, the deterioration of the economic situation interacts with people's expectations and psychology, which will plunge the economy into a vicious spiral.

At the same time, this kind of deflation will also be exported abroad through international exchanges, and the world deflation will in turn exacerbate the deflationary situation in the country.

Correct answer: c

Analysis: There are many reasons for deflation, including both monetary and non-monetary factors; There are both production and management reasons; There are both foreign and domestic reasons. According to the analysis of the situation of deflation in various countries in the world in modern times, there are generally the following reasons:

Monetary tightening, bursting asset bubbles, multiple structural factors, and liquidity traps.

Answer]: There are various reasons for the formation of deflation, from the perspective of the reasons for deflation in various countries in the world in the past two hundred years, it is related to the implementation of contractionary monetary policy, excess production capacity, changes in investment and consumption expectations, spending cuts, technological progress and deregulation, the rigidity of the exchange rate system, and the inefficiency of the financial system.