In a previous blog post we have discussed the economical situation known as inflation where prices for consumers are increasing. Here, the topic will switch to the opposite of inflation, which is deflation.
Deflation is the reverse of inflation in that generally consumer prices are on a downward trend that is the effect by the cause of reductions in the supply of money and/or credit. There have also been different scenarios where deflation has risen, such as declines in personal and governmental spending as well as decreasing investment spending.
A factor that does become apparent when there is an occurrence of a deflating economy is the increasing unemployment rate. Other signs include increased loans defaults, diminishing profits and even business.
To counter such difficulties and avoid massive price drops, the Federal Government will usually increase the monetary supply to raise prices and essentially create inflation.
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