Effects of Deflation

Written By Fathimath Sama on Saturday, 22 June 2013 | 23:52

Deflation affects the entire economic life of the country. The different sections of society are affected in the following manner. 

(1) Producers and Traders: 

Deflation adversely affects both the producers as well as the traders. The producers are adversely affected on three counts 
  1. The production costs at a time of deflation do not fall as rapidly as the prices of the finished product. 
  2. Whenever a producer buys raw-materials etc, for the purpose of production, he has to pay a higher price for it when the finished product reaches the market, the prices of raw-materials will have fallen still further and the producer will be compelled to sell his product at a reduced price.
  3. The demand for commodities also goes down at a time of deflation. 
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