Respuestas
Situation of excess supply that can cause a generalized decrease in prices or an economic recession.
Deflation or negative inflation, in economics, is a widespread and prolonged decline - at least, two semesters according to the IMF - of the prices of goods and services caused by a slackness in demand and an excess of productive capacities.
The disadvantages of deflation are basically the reduction of economic activity, the increase in unemployment, increase in economic uncertainty, increase in real interest rates due to falling prices, falling demand.
The dangerousness of this situation comes from how difficult it is to get out of it, since it creates a vicious circle whereby when demand falls, companies see their benefits reduced by having to reduce prices to get sales, as a result , they have to reduce costs, which means they have to cut jobs. In turn, if there are people who are out of work, the demand will continue to decline as they will stop buying too.
Deflation supposes the decrease in prices that affects the decrease in aggregate spending that negatively affects activity and employment. This almost unstoppable ball causes economic crisis with negative effects on wealth, the distribution of wealth and social inequality since it benefits the creditors and harms the debtors. As prices fall, there is an increase in the real interest rate (even if the nominal rate is maintained or even lowered), causing a fall in demand and general economic activity.