Deflation: Analysis Of The Status

The deflation is a key problem in current economy of China, this paper regards it as an important research point. Under the economic analysis of the general supply, the general demand and currency factors, we can make a conclusion as follows:1 . The deflation is a main phenomenon of substantializing economy. The primereason is due to the lower producing efficiency of the enterprise, the lower effective supply and the higher ineffective supply which resulted in the powerless economic increase.2 . The profitable investment chances in substantializing economy and the number ofprofitable investment projects in banks are lessened, but the bad capital in banks is increasing. Therefore, the bank inclines not to provide a load easily. Subject to the inside produce of currency supply, meanwhile, this means the declination of currency supply increasing rate. Among the economic depression, the price dropping and the drop of currency supply increasing extent, the first one is a radical factor due to the declination of produce and investment opportunities, which resulted in lessening the supply of credit and currency. The third one is a representation and the result of economic depression. That is to say, in substance, the deflation is not a problem of currency so that it is not enough to only increase the currency supply when deal with it.3. The further reasons of deflation producing is the serious sustain losses in business of the enterprises. By the transmit of bad capital of the bank, once the deflation produces, it will incline to deepen by themselves. It also can transport internationally by other ways.4. The deflation can produce both output effect and distribution effect, which include the wealth contractive effect, economic depression effect, unemployment effect and the deflation tax effect and so on.5. We should recognize the limitation of currency and financial policies during the anti_deflation , especially, we must pay attention to the government functions in marketing economy.