Deflation can render monetary policy powerless.

Question

Quizplus · Accepted Answer

If an economy is experiencing deflation, meaning prices are consistently falling, it can become very difficult for central banks to stimulate economic growth through traditional monetary policy tools such as lowering interest rates or increasing the money supply. This is because individuals and businesses may hold onto their money, waiting for prices to fall even further, which reduces the effectiveness of monetary policy in stimulating spending and investment.

Deflation Can Render Monetary Policy Powerless