Economic downturns often deepen because falling prices can trap businesses and consumers in a cycle of declining demand and spending. When costs drop sharply, companies may delay investments, fearing further price cuts, while households hold back purchases expecting even lower prices. This rigidity in pricing behavior worsens recessions by prolonging stagnation and reducing economic activity. Understanding this dynamic could guide policymakers in designing interventions to stabilize markets during downturns.
Prices can get sticky. That helps explain why recessions hurt so much — and what policymakers can do about them.
