Macroeconomics- Article Critique

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MACROECONOMICS- ARTICLE CRITIQUE ON

The price level in the U .S drops , but is the threat of deflation far away

INTRODUCTION

United States experienced short spells of falling prices at the end of 1940s and in the mid 1950s although the last time deflation was a serious problem for the country was during the great depression However , this national threat of deflation developed concerns again in 2008 when consumer prices in the country dropped the steepest and the

br fastest in over half a century . This was owed to the prolonged recession of 25 years in the U .S

RISING CONCERNS

Deflation , a persistent fall in the price level raised concerns because of its potential . Deflation has been known to reduce incomes , shrink corporate profits , cause unemployment and probably lead to a situation called deflationary spiral where a fall in price cause the supply to decrease and that in turn lowers wages and demand , which leads to a further drop in the price level . In the article large-scale unemployment was predicted and attributed to deflation , weak demand and a fall in supply

WAS THE DEFLATIONARY THREAT EMPTY

The drop in the Consumer price index (CPI ) encouraged fears of deflationary forces setting in the economy . However , it was not to be forgotten that the index was largely due to a 17 fall in energy prices and a 30 collapse in gasoline prices . Looking at the figures of core CPI which excludes all...