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What is deflation in economics?

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. Deflation is the general decline in the price level of goods and services.

What happens during deflation?

During deflation, the purchasing power of currency rises over time. Deflation is the general decline in the price level of goods and services. It is usually associated with a contraction in the supply of money and credit, but prices can also fall due to increased productivity and technological improvements.

How does price deflation affect the economy?

Historically, it was seen by economists as an adverse phenomenon, but a more diverse range of opinions exists today. According to the Pigou effect, price deflation leads to increased employment and wealth, stabilizing the economy. Deflation is the decline in prices for goods and services that happens when the inflation rate dips below 0%.

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