Deflation is an economic condition characterized by a decrease in the general price level of goods and services over time. In other words, it is a sustained decrease in the cost of living. Deflation occurs when there is a decrease in the overall demand for goods and services relative to the supply of those goods and services.
Deflation can be caused by a variety of factors, including a decrease in consumer spending, a decrease in business investment, a decrease in government spending, or an increase in the supply of goods and services. Deflation can also be triggered by a decrease in the money supply, which can occur when central banks tighten monetary policy in an effort to control inflation.
Deflation can have both positive and negative effects on the economy. On the one hand, deflation can make goods and services more affordable, which can increase consumer purchasing power and stimulate economic growth. On the other hand, deflation can also lead to lower profits for businesses, which can result in layoffs, decreased investment, and slower economic growth. Additionally, deflation can increase the real value of debt, which can make it more difficult for individuals and businesses to repay their debts.
