The consequences of deflation

• Holding back spending: Consumers may delay purchases if they expect prices to fall
• If consumers expect deflation to occur they may delay what?

  purchases
• Why might consumers delay purchases?

  they expect prices to fall
• Holding back spending: Consumers may delay purchases if they expect prices to fall
• Businesses will have lower profit margins so this means revenue and profits decrease for businesses leading to higher unemployment as firms seek to reduce costs by firing workers
• Deflation can lead to an increase in the real value of debt owed by households and firms, making it harder for them to pay off their debts
• What will happen to profit margins in a deflationary period?

  decrease
• What will happen to unemployment due to lower profit margins for businesses?

  increases