Three ways to halt Deflation

by Laura Ehrenberg-Chesler on August 12, 2010

in Credit Crisis,Economic Indicators,Fiscal Policy

Over the past few weeks, there has been an escalated debate about whether or not the United States will fall into a period of deflation.  Deflation is negative for the economy.

The three tools that can be used to halt deflation are: 1) Lower the fed funds rate to 0%.  2)Increase the number of dollars in circulation, which is the equivalent of raising the prices in dollars.  3) A Broad based tax cut.

The Federal Reserve has already pegged the fed funds rate at 0%-.25%.  We will have to wait and see if the other two options come into play.  Maybe they will after the November elections.

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