Legal Definitions - deflation

Definition: Deflation is a situation where the general price of goods and services decreases. It is the opposite of inflation, where prices increase. Deflation can happen when there is a decrease in demand for goods and services, or when there is an increase in the supply of goods and services.

Example: During the Great Depression in the 1930s, there was a significant deflationary period in the United States. Prices of goods and services fell, and people had less money to spend. This led to a decrease in demand for goods and services, which further decreased prices.

Explanation: The example illustrates how deflation can lead to a decrease in demand for goods and services. When prices fall, people tend to hold onto their money, hoping that prices will fall further. This leads to a decrease in demand, which further decreases prices. This cycle can continue until the economy reaches a state of equilibrium.