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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.
deflationa 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.
deflationa 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.