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Deflation is reverse  of inflation. It may be defined as persistent and substantial fall in the general level of prices below full employment level. It is different from disinflation, which is the process or technique designed to reverse the inflationary trend in prices without creating unemployment. When prices are abnormally high, anti- inflationary measures are taken to bring down the price level. Decline in the price level upto full employment level as a result  of these measures is referred to as disinflation. Such fall in prices is unaccompanied by any decrease in the level of output, income and employment. It is good for the economy, as it relieves the economy from harmful effects of inflation.

When prices continue to fall from the level of full employment, income as well as employment are adversely affected. This situation of fall in prices accompanied by decrease in the level of output is called deflation. However, every fall in prices is not deflation just as every rise in prices is not inflation. In the words of Coulborn “deflation is associated with falling expenditures and prices, though to be more accurate we must remember that all causes of falling prices are not deflationary, there are falling prices which are disinflationary; and there are those which productive progress will require unless other adjustment are made instead.”. According to him, “involuntary unemployment is the hall mark of deflation

Deflation is the state of economy, where the money value is rising or the price level is falling. The fall in the price level is not only the result of the fall in the money supply, but it can also be the cause of contraction in money supply. For instance, if the price fall is continuous, the economy may require less money supply than before.

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