Deflationary Spiral

A Deflationary Spiral is an economic situation attributed to hyperdeflation where decreases in the price level lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in the price level.

• • …
• Counter-Example(s):
  • Hyperinflation.
• See: Debt Deflation, Feedback Loop, Price Index, Inflation Rate, Consumption (Economics), Recession.

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References

2020

• (Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral Retrieved:2020-4-6.
  • A deflationary spiral is a situation where decreases in the price level lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in the price level. Since reductions in general price level are called deflation, a deflationary spiral occurs when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. In science, this effect is also known as a positive feedback loop. Another economic example of this principle is a bank run.

    The Great Depression was regarded by some as a deflationary spiral. A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation. Whether deflationary spirals can actually occur is controversial, with their possibility being disputed by freshwater economists (including the Chicago school of economics) and Austrian School economists.

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