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Using the following link as a source of information, was there a period when the U.S....

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barbiedot | Student, Undergraduate | (Level 1) Valedictorian

Posted September 19, 2013 at 12:41 AM via web

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Using the following link as a source of information, was there a period when the U.S. experienced deflation? 

http://inflationdata.com/inflation/inflation_rate/historicalinflation.aspx

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted September 19, 2013 at 1:25 AM (Answer #1)

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The United States has not experienced deflation very often in its history.  The only time when the US ever experienced more than two straight years of deflation was during the Great Depression.  Deflation is typically something that is experienced during times of economic hardship.

To understand why this is so, let us look at what deflation is.  Deflation is the opposite of the more common phenomenon of inflation.  Inflation is when average prices rise.  Deflation, then, is when average prices fall.  In the link that you provided, deflation is shown by a negative number in the right hand column.  This shows that overall prices dropped during that year.

The Great Depression was the only time of sustained deflation in the US.  This is because people stopped having the money needed to buy goods and services.  When people lost their jobs and their savings, they no longer had money to spend.  When this happened, aggregate demand went down.  When aggregate demand drops, prices will drop, all other things being equal.  This is because people have less money and less desire to buy and so merchants must lower their prices.

Today, we do not have deflation even though the economy is not very strong.  We had one year of deflation in 2009 when the “Great Recession” was at its worst.  But since then, we have had low inflation in the range of 2% per year.

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