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    Deflation is a decrease in the general price level of goods and services resulting in a negative inflation rate and an increase in the real value of money over time. It is caused by a fall in aggregate demand which creates a deflationary spiral where lower prices lead to lower production and wages, further reducing demand and prices. Deflation can be countered by governments and central banks boosting demand through actions like tax cuts and increased spending.

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    Deflation is a decrease in the general price level of goods and services resulting in a negative inflation rate and an increase in the real value of money over time. It is caused by a fall in aggregate demand which creates a deflationary spiral where lower prices lead to lower production and wages, further reducing demand and prices. Deflation can be countered by governments and central banks boosting demand through actions like tax cuts and increased spending.

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    59 views9 pages

    Deflation

    Uploaded by

    viveksreedharan88
    Deflation is a decrease in the general price level of goods and services resulting in a negative inflation rate and an increase in the real value of money over time. It is caused by a fall in aggregate demand which creates a deflationary spiral where lower prices lead to lower production and wages, further reducing demand and prices. Deflation can be countered by governments and central banks boosting demand through actions like tax cuts and increased spending.

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    of 9

    DEFLATION

    BY

    SHRI VIVEK
    DEFLATION


    In economics, deflation is a decrease in the 
    general price level of goods and services.

    Deflation occurs when the annual inflation rate falls 
    below zero percent (a negative inflation rate), 
    resulting in an increase in the real value of money – 
    allowing one to buy more goods with the same 
    amount of money
    DEFLATION


    This should not be confused with disinflation, a slow-
    down in the inflation rate (i.e. when inflation 
    decreases, but still remains positive).

    Deflation raises the real value of money over time.
    Effects of Deflation

    Deflation is caused by a shift in the supply and 
    demand curve for goods and interest, particularly a 
    fall in the aggregate level of demand.

     Because the price of goods is falling, consumers have 
    an incentive to delay purchases and consumption 
    until prices fall further, which in turn reduces 
    overall economic activity.

    Deflationary spiral


    A situation where decrease in price lead to lower 
    production, which in turn leads to lower wages and 
    demand, which leads to further decreases in price. 

    Since reductions in general price level are called 
    deflation, a deflationary spiral is when reductions in 
    price lead to a vicious circle, where a problem 
    exacerbates its own cause. 
    Causes of Deflation

    Deflation may be caused by a combination of the 
    supply and demand for goods and the supply and 
    demand for money, specifically the supply of money 
    going down and the supply of goods going up. 

    Fall in prices can result from improvement in 
    productivity.

    Deflation may arise, if consumers reduce their 
    spending.
    Counteracting deflation

    Until the 1930s, it was commonly believed 
    by economists that deflation would cure itself.

     Some  economists argued that the economic system 
    was not self-correcting with respect to deflation.

    The  governments and central banks had to take 
    active measures to boost demand through tax cuts 
    or increases in government spending

    Countries affected by Deflation


    United Kingdom -  During 2nd  world war

    United States -  In 1836, 1873 -96,1930.

    Hong kong-  Late 1997 & 2004.

    Japan – 1980s & 1990s.

    THANK YOU

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