Deflation

Deflation is a general decline in prices. Deflation may be caused by a decrease in the supply of currency or reductions in spending at the individual, investor, or government level. Many economists recommend that measures should be taken to combat deflation when it occurs, due to the perceived risk of a deflationary spiral—that is, a situation in which falling prices lead to falling demand, which in turn lead to further falling prices and further falling demand, and so on. A side effect of a deflationary spiral may be increased unemployment. The worldwide Great Depression of the 1930s was characterized by a deflationary spiral.