Dynamics of Deflation and Unemployment: Fall into an Abyss of Depression



Business cycles, reflected in changes in the rate of growth, consumer spending, and price levels are experienced by all economies. History shows that economic activities accelerate, decelerate, and accelerate again from time to time. However, many policy makers find it very difficult to manage changes in economic activities, particularly changes in price levels and unemployment rates because a dramatic change in these variables can affect the lives of people at large, causing widespread dissatisfaction with the government of the day. The global financial crisis in 2008 had a considerable impact on economies all over the world. Many enterprises were forced to close down because of cash flow problems and a large number of jobs were lost. Much of what was believed to be glorious and prospective suddenly became gloomy and retrospective. Many people tried to provide explanations for such abrupt changes. Policy makers are eager to find ways to revive the momentum and growth of economies, such as manipulating money supply and interest rates. Unemployment problems and the pressure of deflation make the future even gloomier. Instead of trying to investigate the reasons for such financial crises and why we cannot foresee them, we are attempting to explain the danger and problem of deflation, how economic depression happens, and the relationships between domestic deflation, unemployment, and wage changes and compare the situations in other economies, for example, those of Europe, Japan, Hong Kong, and the USA.


Interest Rate Gross Domestic Product Unemployment Rate Monetary Policy Price Level 


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© Springer India Pvt. Ltd. 2013

Authors and Affiliations

  1. 1.School of Account and FinanceHong Kong Polytechnic UniversityKowloonHong Kong
  2. 2.School of Continuous EducationBaptist University of Hong KongKowloonHong Kong

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