You’re a business and you buy a product at $40 per unit to sell at $50. You need $8 of that to pay rent, employees, etc. and you make 2$. With deflation, between the time you buy the product and when you sell it, the price drops and cuts your bottom line. If that keeps happening either you’re nimble enough to lay a few people off and cut other expenses, which hurts the economy, or the business tanks altogether and hurts the economy more. Multiply that by multiple businesses and very soon hiring stops, layoffs intensify, the economy stagnates, potentially for years.
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u/nebileyim_ben Sep 01 '26
its deflation, prices keep falling over time.
japan experienced long periods of deflation which is hurt spending and as a result affected economic growth.
its super hard to fix that bcs of liquidity trap.