Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During deflation, the purchasing power of currency rises over time.What causes deflation?Deflation is usually caused by a decrease in the money supply, which can be caused by a variety of factors including central bank policy, decrease in government spending, or a decrease in private sector spending.What are the effects of deflation?The effects of deflation can be both positive and negative. On the one hand, deflation can lead to increased purchasing power and lower interest rates, which can be beneficial for consumers and businesses. On the other hand, deflation can also lead to lower output and increased unemployment, which can be detrimental to the economy.Which is better, inflation or deflation?There is no definitive answer to this question. Each has its own advantages and disadvantages. Inflation can lead to higher prices and lower purchasing power, while deflation can lead to lower output and increased unemployment. Ultimately, it depends on the specific situation and what is most beneficial for the economy.
