1. Effect On Production :- Deflation adversely effects the
producers because prices fall rapidly but the cost of production does not fall
correspondingly. Fututer, the demand for commodity foes on falling due to
deflation. As a result of this, profits of the producers will fall and there
will be over production of the commodities. Since producers incur heavy losses
they curtail the employment. Thus it affects the whole economy.
2. Consumers :- Consumers can puchase more
commodities as the prices are falling and thus they can increase their standard
of living.
3. Creditors And Debtors :- During deflation creaditors are
benefited because the repayment of loan which they receive have more purchasing
power. As a result the Creditors tend to gain and the debtors tend to lose.
4. Salaried And Labour Calsses :- Wage earners and salaried people
gain during deflation. The reason is that with the fall in prices, and salary
being fixed, they receive more purchasing power.
5. Investors :- During deflation the fixed income
investors (debenture holders) gain because income remains constant while the
price are falling. And the share holders on the other hand lose since the
business profits fall during deflation thus decreasing the dividend on shares.
6. Exporters :- The exporters will receives less
orders from other countries because money value during deflation increases. As
a result other countries will have to pay more price for the commodity.
7. Government And Country :- Government has to face the
difficulties in collecting the taxes. People prefer and purchase the
commodities than saving. It creates financial problem in the market as well as
to the government aslo. Producers reduce their production as there is no demand
so they have to terminate the employees. Government cannot start new programmes
for want of funds. Thus the situation in the country goes out of the control. National
income also reduces.
To
summaries we can say that increase in an unemployment, decrease in production,
increase inpoverty and total disturbance in the economy is the outcome of
deflation.
Thus
Deflation Is More Dangerous Than Inflation In An Economy.
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