Understanding Deflation and Its Impact on Investment

Deflation refers to the decrease in the general price level of goods and services, which raises concerns about its implications for investment. The fear is that if prices continually fall, consumers might decide to delay purchases, anticipating even lower prices in the future. However, this perspective is flawed, as demonstrated by the example of technology, where consumers continue to buy computers despite their prices decreasing over time. Thus, the perceived disincentive to spend money during periods of deflation does not necessarily hinder purchasing behavior.