What do you mean by the term deflation?

Business & Management
#1

Deflation is a persistent fall in the general price level of goods and services. It is not to be confused with a decline in prices in one economic sector or with a fall in the inflation rate (which is known as Disinflation).

Sometimes deflation can be harmless, perhaps even a good thing, if lower prices lift real INCOME and hence spending power. In the last 30 years of the 19th century, for example, consumer prices fell by almost half in the United States, as the expansion of railways and advances in industrial technology brought cheaper ways to make everything.The expectation that prices will be lower tomorrow may encourage consumers to delay purchases, depressing demand and forcing FIRMS to cut prices by even more.

#2

Deflation is a general decline in prices in an economy. It is usually triggered by a reduction of the supply of money or credit (bank loans to businesses or individuals). It could also be triggered by reduced spending overall, which in turn makes prices “deflate” to meet the demand. It is probably one of the trickiest situations for an economy because interest rates are usually low when this happens and the Central Bank has very few manes to revert the situation. This is what happened with Japan for over 20 years.