A – sustained decline in the price level and, unless otherwise stated: measured by the consumer price index – over a certain period of time, usually based on two quarters, – that becomes entrenched in expectations and – can lead to a sustained decline in economic activity overall. – A temporary decline in prices or even a drop in stock prices is therefore not deflation, although it is often described as such in the media. Falling prices are dangerous if nominal wages remain rigid at the same time. For then a fall in prices is at the expense of profits and thus of investment, which inevitably leads to a sharp drop in employment sooner or later. – See deflation, good; deflation, bad; deflation, ugly; deflationary spiral; monetary stability; inflation. – Cf. Deutsche Bundesbank Monthly Bulletin of June 2003, pp. 16 et seq. (explanatory notes), ECB Monthly Bulletin of June 2014, pp. 70 et seq. (detailed explanation; overviews; references).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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