Emily has sent an article on deflation:

Apart from the fact this is a very good example of keeping up to date with a critical development in macroeconomics, it also raises an important question. My response is below:


http://news.sky.com/story/1407096/why-record-inflation-fall-is-not-all-good-news​

Hopefully, following several lessons on the subject, you are able to make a reasoned judgement of that? He has not really added much to the debate (this level of news article is good for current context, but for depth of analysis we must turn elsewhere. Broadly his points are accurate - price falls should be positive, up to a point, but at some point they can become dangerously negative. It is up to you to make that case eh?

Don't forget that we are in a globalised economy, where circumstances occurring elsewhere have a significant impact here; however, all economies are different - at different stages of development, at different stages of the cycle, and with different internal rigidities and structural dynamics. For example, if the problem with falling prices becomes one of falling wages, should the government intervene and set a wage floor to stop a wage-price spiral down? I speculate we might see such talk in Europe if deflation persists and spreads, and it may gain traction; over here I doubt it - we are different.

Thanks for showing me - us! - the article. I hope everyone else takes the time to read it I am putting this on the blog).

Joss Bolton

Economics Teacher

Lingfield Notre Dame School

 

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From: Emily
Sent: 14 January 2015 22:00