This document discusses deflation, recession, and the relationship between the two economic concepts. It notes that deflation is a decrease in the general price level, while a recession is a period of economic contraction defined by falling GDP, income, profits and rising unemployment. A deflationary cycle can lead to recession as consumers and businesses reduce spending and hiring in response to lower prices. Recession in turn exacerbates deflation as spending declines. The document explores debates around whether deflation is good or bad for an economy, as well as methods for preventing recession, including fiscal and monetary policy interventions.

1. Recession and deflation

2. deflation
 In economics, deflation is a decrease
in the general price level of goods and
services.

3. recession
 In economics, a recession is a
business cycle contraction. It is a
general slowdown in economic
activity. Macroeconomic indicators
such as GDP (gross domestic
product), investment spending,
capacity utilization, household income,
business profits, and inflation fall,
while bankruptcies and the
unemployment rate rise.

5. Is deflation and recession
same?
 A deflationary cycle sees a general dip in the cost of
goods and services.
 On the demand side, consumers reduce their
expenditures as prices continue to decrease, opting
to wait and make their purchases at a lower cost. This
can prolong and worsen deflation.
 On the supply side, business owners and employers
are less likely to make new hires or investments.
 Studies suggest deflation occurs when productivity
increases are coupled with decreases in money-
supply.
 Runaway deflationary cycles may lead to economic
recession.


6.  A recession is a broad downturn in
economic activity, affecting every aspect
of an economy's health.
 Household income, INVESTMENTS,
new hires, commercial profits and
employment all suffer in a recession.
 Deflation, generally believed to be a
critical cause of recessions, is also an
effect of them, as consumer spending
drops and bankruptcies and foreclosures
increase.
 An unchecked recession may lead
ultimately to an economic depression.

7. Prevention/Solution
 According to Keynesian economists (adherents
to the monetary philosophies of John Maynard
Keynes), deflationary cycles should be met by
federal intervention.
 Tax cuts and increased federal spending are
methods used to expand money supply.
 Monetarist economics suggests reducing interest
rates, which makes borrowed money more
affordable. More conservative approaches to
dealing with deflationary cycles, such as the
laissez faire school of thought, call for the
increased removal of government regulations in
the economy.

8. Is deflation good for economy?
 Under normal circumstances, Deflation
does not seem to be a good
phenomenon, affecting the economy of a
nation. At times, it is looked upon as a
situation even worse than an economic
depression. Theoretically, Deflation
refers to low price of goods, which is
indeed a matter of great relief to the
consumers. But in reality, it is the Good
and Bad Deflations which affect the
economy of a nation.

9.  Good Deflation should not be considered
as a hypothetical situation. It is very
much a real condition of the economy,
characterized by substantial growth and
development in some sectors of a
country, despite the fact that the prices of
products in these sectors has been
reducing since a long span of time.
In fact, Good Deflation results from
technological progresses, which initiates
excess supply of goods.

10.  From the consumer's point of view,
Good Deflation is immensely
beneficial as it helps those commercial
sectors like the bank to deal with
sinking prices. The banking sector of a
country faces such as a situation,
when the value of the collateral
(securities) for loans decreases
remarkably, having low sale value
than what was earlier expected. This
condition is far more aggravated by
public debts and unemployment
problem, which display rising trends.

11.  Bad Deflation is born out of trifling
demands. It is an economic situation
characterized by reduction in the prices
not due to developments in the
productivities, but because of a lack of
demand induced by crashing down of
the stock market. In fact, Deflation
becomes bad when the consumers save
their money for future uncertainties, or in
the expectation that prices may lower
further.

12. Its implications and consequences
 It is the cumulative process of very little generation of
demand which affects the population of a country at the
time of Bad Deflation. Detection of Bad Deflation thus
requires an in-depth study of the overall economic
conditions of a nation and not just the price of goods.
 Owing to Bad Deflation, the consumers who are the
potential purchasers become unwilling to INVEST and
buy, considering the future of their money and the
country's economy. This leads to a fast fall in the prices,
worsening the overall economic conditions further.
Under the impact of Bad Deflation, the recessions are
virtually all transformed into depressions. In reality, it is
not the price fall of Bad Inflation which matters, but the
serious consequences it gives birth to.