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Deflation

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Definitions for: deflation
deflation

the opposite of inflation. A decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by 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, since the process often leads to a lower level of demand in the economy. Other downside effects include possible pay cuts and more expensive repayment of consumer debts. The upside of falling prices is that mild deflation would assure working people (at least those who fend off pay cuts) of steadily rising real wages.

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