<p>Krugman's <a href="http://www.pkarchive.org/theory/baby.html" rel="noreferrer">classic story</a> of a babysitting co-op never uses the word "deflation" but describes it perfectly. Go read it first.</p>

<p>Basically, if you think of money as a thing that has a price level, just as other things have prices, it's possible to imagine that price level falling relative to other goods (inflation) or doing the reverse (deflation). Inflation is, for some reason, easier for people to understand— it means that if you hold on to a $100 bill for a year, that bill will buy you less stuff next year than it'll buy you right now.</p>

<p>In contrast, if you're in a deflationary world, the money in your wallet will be able to buy more stuff a year from now than it can today, giving you an incentive to hang on to your money and wait to spend it. The problem is, if everyone does that, then the fact that everyone is trying to hold on to cash means that the value of cash continues to go up relative to goods (more deflation), which is known as a liquidity trap.</p>

CC BY-SA 4.0
2023-08-06T19:05:06.197Z
But people will always need to buy essentials, so at somepoint deflation will surely hit a floor and then from that point only money will be spent if someone provides something of actual value.
troy beckett
CC BY-SA 3.0
2015-04-20T18:21:00.620Z
2015-04-20T18:21:00.620Z
dismalscience
<p>Deflation is reduction in price level.</p>

<p>How is price level measured? There are many methods, just imagine checking the price of certain things (maybe gasoline, house rent, butter, etc.) every month and see if, on average, the prices have increased or decreased.</p>

<p>If they have decreased then it's price deflation.
If they have increased then it's price inflation.</p>

<p>What causes it? That's complicated, but certainly everyone (?) would agree that money supply (the amount of money in the system) will affect prices. More money in the system, prices will increase and vice versa. </p>

CC BY-SA 3.0
2015-04-20T21:13:39.497Z
2015-04-20T21:13:39.497Z
snoram
<p>Deflation is caused by (1) technological advance, given a static (2) employment ratio.</p>
<p>Other than technology and either employment or competition, deflation can also be from the government doing their job in plaintiff payable tax and target margin networks - thereby causing supply and demand to be <em>not lower in total benefit like technology</em> but (3) complement demand which is earned by labor from other markets, or otherwise breakeven <em>marginal</em> cost to <em>rational</em> product revenue.</p>

CC BY-SA 4.0
2022-12-20T20:33:15.487Z
2022-12-20T20:33:15.487Z
Nick Carducci for Carface Bank
<p>This pretty much went over my head:<a href="http://en.wikipedia.org/wiki/Deflation" rel="nofollow">http://en.wikipedia.org/wiki/Deflation</a></p>

<p>Is there something a bit easier to digest than this? For a non econ student?</p>

CC BY-SA 3.0
2015-04-20T18:15:34.943Z
Are you having trouble understanding the introduction or the later parts of the article?
FooBar
CC BY-SA 3.0
2015-04-20T18:34:35.190Z
The later parts of the article. I only understood the part about the negative interest rates.
Victor123
<reference-request><deflation>
Easy to understand explanation of deflation and what causes it
Victor123
# Easy to understand explanation of deflation and what causes it

(Asked by: username_0 on 2015-04-20)

This pretty much went over my head:<http://en.wikipedia.org/wiki/Deflation>

Is there something a bit easier to digest than this? For a non econ student?

**Tags:** reference-request, deflation

> **Comments:**
> **username_1**: Are you having trouble understanding the introduction or the later parts of the article?  
> **username_0**: The later parts of the article. I only understood the part about the negative interest rates.  

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## 3 answers

### Answer by username_2 on 2015-04-20. Score: 7

Krugman's [classic story](http://www.pkarchive.org/theory/baby.html) of a babysitting co-op never uses the word "deflation" but describes it perfectly. Go read it first.

Basically, if you think of money as a thing that has a price level, just as other things have prices, it's possible to imagine that price level falling relative to other goods (inflation) or doing the reverse (deflation). Inflation is, for some reason, easier for people to understand— it means that if you hold on to a $100 bill for a year, that bill will buy you less stuff next year than it'll buy you right now.

In contrast, if you're in a deflationary world, the money in your wallet will be able to buy more stuff a year from now than it can today, giving you an incentive to hang on to your money and wait to spend it. The problem is, if everyone does that, then the fact that everyone is trying to hold on to cash means that the value of cash continues to go up relative to goods (more deflation), which is known as a liquidity trap.

> **Comments:**
> **username_3**: But people will always need to buy essentials, so at somepoint deflation will surely hit a floor and then from that point only money will be spent if someone provides something of actual value.  

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### Answer by username_4 on 2015-04-20. Score: 1

Deflation is reduction in price level.

How is price level measured? There are many methods, just imagine checking the price of certain things (maybe gasoline, house rent, butter, etc.) every month and see if, on average, the prices have increased or decreased.

If they have decreased then it's price deflation.
If they have increased then it's price inflation.

What causes it? That's complicated, but certainly everyone (?) would agree that money supply (the amount of money in the system) will affect prices. More money in the system, prices will increase and vice versa.


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### Answer by username_5 on 2022-12-20. Score: -2

Deflation is caused by (1) technological advance, given a static (2) employment ratio.

Other than technology and either employment or competition, deflation can also be from the government doing their job in plaintiff payable tax and target margin networks - thereby causing supply and demand to be *not lower in total benefit like technology* but (3) complement demand which is earned by labor from other markets, or otherwise breakeven *marginal* cost to *rational* product revenue.


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