What is Deflation? and it's effect.

What is deflation? and it's effect.

 Deflation:- Deflation is opposite of Inflation, it is a situation where the overall price level of goods and services falls, resulting in an increase in the purchasing power of money. and the value of  money rise.  Deflation is associated with falling activity and employment. There can be several reasons of deflation.

such as- Decrease in the money supply, Decrease in demand for goods and services or Increase in the supply of goods and services. 

what are Effects of Deflation? 

The effects   of deflation in an economy can be both positive and negative. It's effects are reverse of the Inflation. There are persons who have fixed income such as salaried person, pensioners, and the rentiers have positive effect. because the value of money rises with falling prices. hence  they gain profit during deflation.  On the other hand all type of producers such as Industrialist, seller, retailer and farmers, traders and equity share holders lose their profit with falling prices during deflation.  

During the deflation the purchasing power of goods and services increase due to falling price. So the middle class consumer, with low income gain profit. And businessmen, who have their own business such as retailor, real estate holder, Industrialist, producer of the product and services lose their profit due to deflation. With rising profit of lower class it does not mean that  there is improvement in in income distribution. Rather, the low income groups have to suffer more due fall of income and employment. 

During deflation with falling price of commodity the demand of goods and services decline, resulting the production of goods and services decline. thus on the time of deflation goods and services starts pilling up and and small firms close down due to low profit margin. with the result unemployment spreads. 

Deflation effects the government and the economy as well. because revenues from direct and Indirect taxes decline and government is unable to Increase public expenditure. The real burden of public debt also increases due to deflation. 

Over all deflation effects whole Country, where some are positive effects and some are negative effects. 

Inflation effects and measures to control.