Explain why the inflation that John Cochrane fears would “bring stagnation rather than prosperity.”  Deflation  Europe’s Deflation Risk  The United States is planning to push Europe towards new and...

Explain why the inflation that John Cochrane

fears would “bring stagnation rather than

prosperity.”

 Deflation

 Europe’s Deflation Risk

 The United States is planning to push Europe

towards new and more aggressive efforts to boost

aggregate demand given a renewed risk of deflation in the Eurozone.

 Source: Reuters, September 12, 2014

 a. Explain the process by which deflation occurs.

 b. How might Europe boost its aggregate

demand? Might the boost to aggregate

demand create demand-pull inflation?