What is Deflation ?
- Deflation is the opposite of inflation.
- Deflation refers to situation, where there is decline in general price levels.
- Thus, deflation occurs when the inflation rate falls below 0% (or it is negative inflation rate).
- Deflation increases the real value of money and allows one to buy more goods with the same amount of money over time.
- Deflation can occur owing to reduction in the supply of money or credit.
- Deflation can also occur due to direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending.
- Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy.