Spain’s Falling Prices Fuel Deflation Fears in Europe

http://www.nytimes.com/2009/04/21/business/global/21deflate.html?_r=1&em

Brain Storm

  1. “It’s a question of survival for everybody,” he said. Still, the lower prices have not translated into higher sales. Fermax’s orders fell 25 percent in the first quarter. Prices for some intercom parts that he buys, like video screens, have also come down, but it is not enough to make up for the sales drought. “Prices have to come down more and we will have to spend less,” he said. Why supply price not fall enough? Lucas model.
  2. Deflation. Why deflation is not favored? why cut interest rate, increase money supply? how to increase money supply? why central bank control deflation and inflation?
  3. to a employee, if the wage can adjust smoothly, that's OK. But the unemployment means nothing-at-all, that fears limit consumption, no matter supply price down as well.
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