deflationary spiral

(noun)

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.

Related Terms

  • liquidity trap

Examples of deflationary spiral in the following topics:

  • Deflation

    • Economists generally believe that deflation is a problem in a modern economy because they believe it may lead to a deflationary spiral .
    • This is the deflationary spiral.
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