Introduction
Deflation ( also known as negative inflation) refers to the economic condition in which prices of goods and services decrease and the value of money increases. Decrease in demand, increase in supply, high saving rates etc. are some major causes of deflation. There are both positive as well as negative effects of deflation in the economy.
Features Of Deflation
Some of the notable characteristics or features of deflation can be pointed out as follows:
1. Fall In Price
Deflation is a process of fall in price level. Price of the products will fall down rapidly.
2. Continuous Process
It is a continuous process of price fall for a long period of time.
3. Increase In The Value Of Money
Purchasing power or value of money will be increased in deflation.
4. Decrease In Supply
The main cause of deflation is a decrease in supply of money in the economy.
5. Wages And Salary
Salary and wages of workers will be decreased due to limited supply of money in the economy or deflation.
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6. Increased Output
Production or output of the products will be increased.
7. Control
Deflation can be controlled by supplying adequate amount of money in the market, increasing expenditure and cutting interest rate.
8. Rising Unemployment
Because of reduced revenue, firms may cut production that may lead to higher unemployment.