Inflation in prices can have the effect of dampening Demand as well, since people put-off purchases.
Just to be clear, it is when prices are expected to fall that people put off purchases. It doesn't make sense to wait longer, all other things equal, if you think you'll pay more later.
And when you get Alice-in-Wonderland oddities like contractionary tax cuts at the zero-lower-bound in simple New Keynesian models, it happens in part because people in the model expect falling prices. The most accessible discussion I could find of these oddities is given by Eggertsson (2010):
Page Missing nice thing is that he spends most of the article on simple models, so he actually gives us graphic representations of the equilibrium dynamics (and he does it while including the effects of expectations). Of course, he talks about fiscal policy and the ZLB, but it can give everyone a sense of how economists think today as opposed to what they probably saw in ECON 101. It's also a good example of how expected inflation can play with equilibrium dynamics in economic models. Anyhow, deflation dampens demand, not inflation.
Side note: you only get these odd things in NK models where you use peculiar parameter values, solve the model by log-linearization (which effectively rids you of certain equilibria) and you have to assume away the capacity of the central bank to do anything at the ZLB. I know they are necessary because the results disappear in Boneva, Braun and Waki (2016) and in models that use a modified Feds Funds rate to account for things like QE as proposed by Wu and Zhang (2016).
In either case, it is not the fact of what is happening but the manner in which Consumers react to the situation.
It is only part of the story. You have financial intermediaries, firms and a central bank somewhere in that picture whose reactions also count.
During the years following the Great Recession there was zero net employment-creation for four long years because the HofR (under Replicant control) REFUSED any stimulus-spending. (See that in the infographic
here.) There is no mystery whatsoever to ending economic-recessions.
If a country does not spend Public Funds to stimulate Demand then jobs cannot be created.
I would highly dispute both claims. The solution is not obvious at all, in no small part because pinning down the effect of fiscal expansion is very complicated. There is a paper by Guay and Normandin (2018) that uses an example of fiscal policy analysis which distinguishes between tax cuts and spending hikes to illustrate their statistical method:
https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CEF2018&paper_id=120.
The key idea is that you need to tie a descriptive statistical model to an underlying causal (structural) model through assumptions to pin down causal effects and the authors propose a statistical test to reduce the number of untestable restrictions you have to impose
a priori to do it For US data, they can rely entirely on their statistical test to pin down the effect of tax cuts on output. They cannot do it for spending: it depends on the assumptions in which you believe. In a very profound way, this is not obvious because the data is currently insufficient to force me to conclude one way or another. Many estimates are reasonable, in other words.
