deflation

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Related to deflations: Deflationary spiral, Negative Inflation

Deflation

Decline in the prices of goods and services. Antithesis of inflation.

Deflation

A situation in which a currency gains value, often resulting from a decrease in prices. Many economists believe that deflation is the result a fall in demand for goods and services, which causes producers to reduce prices. This reduces their profits and causes a reduction in investment, which contributes to a further drop in demand. Because of this deflationary spiral, deflation is often associated with recessions and depressions and has been known to cause unemployment. It is also called negative inflation. See also: Lost Decade, Inflation.

deflation

A reduction in consumer or wholesale prices. The term generally applies to more than just a temporary decline. Compare inflation. See also disinflation.

Deflation.

Deflation, the opposite of inflation, is a gradual drop in the cost of goods and services, usually caused by a surplus of goods and a shortage of cash.

Although deflation seems to increase your buying power in its early stages, it is generally considered a negative economic trend. That's because it is typically accompanied by rising unemployment, falling production, and limited investment.

deflation

a fall in the rate of growth of the general level of prices in an economy, or an absolute reduction in the general level of prices (see PRICE INDEX). The authorities may seek to deflate the economy in order to combat INFLATION and eliminate a BALANCE OF PAYMENTS deficit by using restrictive monetary and fiscal measures, i.e. increasing interest rates and taxes to cut spending. See ECONOMIC POLICY, MONETARY POLICY, FISCAL POLICY, PRICES AND INCOMES POLICY.

deflation

a reduction in the level of NATIONAL INCOME and output usually accompanied by a fall in the general price level (DISINFLATION).

A deflation is often deliberately brought about by the authorities in order to reduce INFLATION and to improve the BALANCE OF PAYMENTS by reducing import demand. Instruments of deflationary policy include fiscal measures (e.g. tax increases) and monetary measures (e.g. high interest rates). See MONETARY POLICY, FISCAL POLICY.

References in periodicals archive ?
Financial intermediation should not be adversely affected either, since the burden of any unexpected increase in the stock of real debt arising from deflation should be offset by a corresponding unexpected increase in real income, while collateral values should not decline but increase as the positive shocks to productivity raise expectations of current and future earnings.
Benign deflation also arises from positive innovations to factor input growth.
However, the increased real debt burden arising from the deflation may prove challenging depending on whether the lower real wage labor is receiving is being offset by the higher return to capital in terms of debt payment ability.
Overall, deflation arising from a positive shock to the labor supply is benign since it promotes economic growth, stable profit margins, and financial intermediation.
Recently, a number of studies investigating the historical record of deflation across many countries have adopted this more nuanced view of deflation.
Aggregate Supply-Driven Deflation and Macroeconomic Stability
1] This success has led to a new concern--could deflation be a problem?
The average rate of price deflation between 1929 and 1933 was 6.
Back-of-the-envelope calculations suggest that a perfectly anticipated annual rate of deflation of 6.
Deflation, therefore, may lead to an increase in the real wage.
4 percent annual rate of deflation experienced during this period caused real output to decline 12.
Economic theory predicts that if wages are sticky in one sector, like manufacturing, and flexible in the rest of the economy, a price deflation will cause employment to drop in the inflexible sector and rise in the flexible one.