With growing talk of recession and economic crisis, the term 'deflation' is also increasingly being used by commentators and the media. Most of us can define inflation relatively easily, but what exactly does 'deflation' mean ?
According to BusinessDictionary.com, deflation is : a decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy.
