Demand and Supply

Depressed Consumer Expenditures

When prices are falling, consumers tend to delay purchasing. Rather than buy a flatscreen today, they wait a year when they will be cheaper. The effect of falling prices is to depress consumer spending leading to lower economic growth.

When general prices in the economy are falling, consumers tend to delay purchasing good and services. For demonstration, rather than buy a flatscreen TV today, they delay a year when they will be cheaper. Suppose we had an inflation rate of 0%, but flatscreen TV's were falling in price. Flatscreen TVs are evolving somewhat cheaper. In this case, ...