What is deflation?

Deflation refers specifically to a decrease in the general level of all prices within an economy over a period of time. This means that when deflation occurs, consumers can purchase more goods and services for the same amount of money, as the value of money increases relative to prices. As a result, individuals and businesses may delay purchases in anticipation of further price drops, which can negatively impact economic growth.

The concept of deflation is better understood when contrasted with inflation, which is the opposite phenomenon characterized by a rise in general price levels. While the other options touch on different aspects of economic conditions, they do not correctly define deflation in relation to how it impacts prices and the economy. Understanding deflation is crucial for grasping broader economic concepts, particularly how it affects consumer behavior and monetary policy.