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The adverse impact of rising prices is well-known but there is little discussion of the consequences of deflation. Mark Jewell, Head of Economics and Politics at Radley College, examines deflation.
* Deflation is a persistent fall in the general price level.
* As the world economy slows, Germany looks vulnerable to deflation, along with Japan.
* Deflation can intensify a slump by raising real interest rates.
* Governments should be able to avert deflation by using expansionary monetary and fiscal policies but must be careful not to create accelerating inflation.
PDF format: 4 A4 pages. First published in Economics Today magazine November 2003.
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