Deflation refers to situation, where there is decline in general price levels.
Thus, deflation occurs when the inflation rate falls below 0% (or it is negative inflation rate).
Deflation increases the real value of money and allows one to buy more goods with the same amount of money over time.
Deflation can occur owing to reduction in the supply of money or credit.
Deflation can also occur due to 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.
