Economic Journal Essay Example | Topics and Well Written Essays - 2000 words

Economic Journal - Essay Example Another effect is that consumers would tend to consume less today and wait until the prices still lower in the future. People will think that if prices are low to day, it will still decrease further in the future. Inflation is indeed harmful to the economy especially when it is paired with unemployment. However, deflation can also be detrimental to the economy. Lower prices tend to make buyers postpone their shopping thinking that prices would still lower in the future. Although it may seem that this is not a bad thing, it can affect the demand and supply of commodities in the economy. Since the consumers don't want to spend, commodities will be oversupplied and supply will swamp demand. According to Paul Krugman, "deflation discourages borrowing and spending, the very things the depressed economy needs to get going." ("What is deflation, what are the risks of deflation, and how can the Fed combat deflation")Since people do not want to spend their money, there is a tendency for firms to incur losses. This will in turn affect the employees of the company and there is a tendency for wages to drop and increase unemployment rate. Also, since deflation makes it difficult for firms to repay their debts, bankruptcy is most likely to occur and jobs will be lost. Yes, lower prices at first might seem to be pro-poor or more of an advantage to those who cannot afford some commodities. But in the long run, households and the people in the economy are still the ones who will suffer since they might lose their jobs and can add up to the problem of recession. Author: Justin Fox Title: The Economy Really Is Fundamentally Strong Magazine: TIME Publication date: October 16, 2008 Summary: It is known to everyone that America is experiencing problems with their economy. That is why when presidential candidate John McCain said that the fundamentals of the US economy are strong, many eyebrows were raised and his opponent Barack Obama didn't miss the opportunity to mock his statement. McCain's running mate Sarah Palin defended that McCain was talking about their workforce and the ingenuity of the American people. She was actually right because the American workforce and their being skillful remain to be strong in the midst of economic meltdown. Many economists assert that it is productivity growth that signals the economic well-being of a country. Productivity growth refers to the economic output per hour worked. This productivity growth was actually the reason why America was able to rise during the Industrial revolution despite the stagnation. What really caused the productivity growth during the industrial revolution is the dependence of the US in technology, electricity, combustion engine, and communication. In the mid-1990s, the engine was replaced with computers and the internet. After that, productivity growth continued to fluctuate. High productivity growth does not guarantee a good economy but it makes it more possible to have economic growth. With all these talks about productivity growth, maybe McCain was right that the fundamentals of the American economy are still strong. Analysis: The workforce of a country is