Deflation can be as great a problem for economies as inflation. Surveying 50 well-known economists in 2010, the Economist found that “the rough consensus was that in the near term, as Western economies struggle to recover, the bigger worry there is deflation.”
a. Why might falling prices cause problems for an economy?
b. Most central banks in high-income countries have been credibly committed to low inflation rates for some time. Why might this commitment make the task of preventing deflation more difficult?