Deflation Hazards, Causes And Treatment

On the basis of classifmg deflation into moderate deflation and harmful deflation, this paper summarized the achievements of the deflationary research, and made a thorough inquiry into the harm, cause and treatment of deflation. The paper analyzed the fallacy of composition, and pointed out that the fallacy of composition owns two characteristics of self-intensifing and mutual-promoting, which make deflation continue and aggravate. The asymmetry between individual and total is another basic characteristic owned by the fallacy of composition, which changes the economic fluctuation if the fallacy of composition develops continually. The fallacy of composition is a kind of "macro-market failure", so the stabilization policy should be chosen by the state. Also, the paper analyzed the economic bodies' responses and the state's behaviors in the deflationary environment, and studied the price fluctuations in the money angle, and finally summarized the causes of the deflation in our country, pointing out that over-investment is the main factor. Several suggestions about setting up some institutional and physical infrastructure facilities are brought forward in the end.