Why does deflation hurt economies?

Answer: Deflation makes people delay purchases, so demand and jobs shrink.

Deflation makes money worth less, so paychecks buy fewer goods. — Wrong. Deflation means prices are falling, so each unit of money generally buys more, not less. Falling incomes can still make a paycheck feel smaller, but that is not the same as money becoming worthless. The clear harm is that people wait for lower prices, so demand falls and businesses cut jobs.

Deflation makes central banks raise rates, so borrowing becomes costly. — Wrong. Deflation does not make central banks raise rates; it usually pushes them to cut rates, though cuts become ineffective near zero. Higher rates would make borrowing costlier, but that is a policy mistake, not the usual deflationary mechanism. The usual harm runs through delayed purchases, falling demand, and job losses.

Deflation makes people delay purchases, so demand and jobs shrink. ✓ — Correct. Falling prices make waiting attractive because the same goods may cost less later. When many buyers wait, sales fall, firms cut output and jobs, and incomes drop, which weakens demand further. That self-reinforcing slump is why deflation can be hard to escape.