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  • Slide: 1
  • Mom!
  • Yes? What's going on?
  • Why have the prices of goods and services decreased so much?
  • That is because we are facing something called deflation!
  • What is deflation?
  • Deflation is when prices of goods and services go down. It might sound good at first because you can buy more with less money, but it can cause problems too.
  • Slide: 2
  • Why are we experiencing this?
  • There're a lot of factors that cause deflation. In our case, deflation is caused by the lack of aggregate demand due to COVID. Since people don't leave the house anymore, there is reduced consumer spending. This causes an excess of supply in firms, so then they decrease their prices so consumers will buy more.Another reason is also when prices drop, people might start to wait for things to get even cheaper. If everyone does this, businesses earn less money and might have to cut jobs or even close down. This can lead to less money being spent in town, which makes the problem worse.
  • Slide: 3
  • Oh now I understand! But what are the consequences?
  • Deflation, caused by less spending, leads to several problems. First, businesses make less money because they have too many products and lower their prices. This can force them to lay off workers or even close down, which increases unemployment. As people become worried about the economy, they spend even less, creating a cycle of reduced demand. When prices keep dropping, consumers might wait to buy things, making the situation worse. Overall, this can slow down economic growth and lead to a recession.
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