Deflation
Deflation is the economic process where the general prices of goods and services fall over time, often increasing the real value of money but risking reduced consumer spending and economic slowdowns. In broader contexts, it refers to the act of removing air or gas from an object, causing it to shrink or lose pressure, highlighting its everyday applications from tires to balloons.
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Deflation in the U.S. during the Great Depression of the 1930s saw prices drop by about 10% annually at its peak, which not only deepened the crisis by discouraging spending but also influenced modern central banking policies to prioritize inflation control. This extreme period highlighted how deflation can turn a recession into a prolonged depression, shaping economic theory for decades.
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