Constant cost-cutting means lower wages and less investment spending. (0% - -2% = 2%) REAL INTEREST IS STILL POSITIVE - INCENTIVISES SAVING (LOSS OF CONSUMPTION ->FALL IN AD)
You might wait until next year, and get this year's model for less. It currently charges on average around 1% based on the negotiating skills of staff, which could be raised to 1.5% - 2% in order to match inflation and prevent SLSL from losing out on revenue in the long-term.SLSL might strategically respond to an increase in the rate of inflation by reducing its costs...- The Roleys idea of web based marketing may be a better idea than pushing up commission rates as the costs of physical premises are likely to increase greatly with a high rate of inflation. In response to this the firm could increase the commission rates it charges. High and particularly fluctuating inflation is likely to be damaging to a business for a number of reasons...- With suppliers prices rising all the time, but at different rates, time must be spent researching the market for the best deals. The opposite of deflation is inflation, which is when prices rise. - With high and fluctuating inflation, businesses don't know what prices will be in three or six months time, let along in one or five years. As businesses and people feel less wealthy, they spend less, reducing demand further. - like inflation, deflation causes resources to be: *wasted when firms incur menu costs *misallocated when firms respond incorrectly to falling prices - unanticipated deflation hurts borrowers even more than lower than expected inflation would - deflation can push an economy into recession and make an existing recession worse This further decreases demand, causing businesses to slash prices even more. (e.g. REAL IR CANNOT fall below 0% and even if it does fall below, it will always be positive because of the negative inflation figure. Deflation slows economic growth. As prices fall, people put off purchases, hoping they can get a better deal later.Lead to lower consumer spending and lower economic growth.As businesses and people feel less wealthy, they spend less, reducing demand.It increases the real value of money and the real value of debt. This is because innovation in manufacturing, which results in lower prices for many consumer goods. In terms of SLSL this probably wouldn't come at much of a cost as they may only need to update their website and change some signs in the window. Stable inflation is maintained through the role of expectations...- If all economic agents in the economy expect inflation to be the same as before, then they will act in a way that ensures that it is achieved.
Typically the economy is booming and output (aggregate supply) is not keeping up with the spending of customers (aggregate demand. You can have both inflation and deflation at the same time in various asset classes. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. That is a 50/50 hedge between inflation and deflation, so I’m taking both possibilities seriously. Once people expect price declines, they delay purchases as long as possible. This is particularly true if inflation is fluctuating. Deflation is worse than inflation because interest rates can only be lowered to zero. deflation reduces power of IR. Deflation can also lead to problems for businesses...- An economy which is not growing in size, which might even be shrinking. Deflation makes it more difficult for debtors to pay off their debts.And, if deflation persists long enough, a depression may follow.During the Great Depression deflation was present most of the time.A low to modest amount of inflation is also good for an economy. Borrowing and lending becomes and opportunity and a problem for businesses...- Inflation initially benefits borrowers and harms lenders.Consumers react to inflation as well as businesses...- Prolonged inflation tends to lead to more saving. - This is caused by too much demand in the economy as a whole. This may even give SLSL a USP, if competitors raise their commission rates to cope with inflation. But if inflation is prolonged, businesses have to cut their costs to survive. For example, if everyone expects inflation to be 2%, then workers will negotiate pay rises of 2% plus a little more to give them higher spending power than before. But decisions have to be made now which will affect the business in the long term. It is only when inflation rates rise considerably that businesses may need to adapt their strategiesSLSL might strategically respond to an increase in the rate of inflation by charging higher commission rates...- If the rate of inflation increased in the future by a significant amount SLSL would face increases in its costs either from overheads or higher wages. They also become less willing to borrow money, not knowing what will happen in the future. As prices fell, companies went out of business. This is because if consumers believe prices will rise they will purchase now rather than wait and pay more in the future. - Equally, even quite low levels of deflation can have a significant impact on business.
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