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'''Deflation''' is a reduction of the amount of money in circulation.
'''Deflation''' is a reduction of the amount of amount of money in circulation.
When the cost of goods decreases over time, and thereby "deflate" in their prices. For example, deflation would exist when something that cost $1 lastWyear then costs only 95 cents this year. The value of paper money (e.g., a dollar bill) may increase during deflation. Annual interest rates on savings can even become negative rather than the usual positive, as depositors may have to pay banks to safeguard the money.
When the cost of goods decreases over time, and thereby "deflate" in their prices. For example, deflation would exist when something that cost $1 lastWyear then costs only 95 cents this year. The value of paper money (e.g., a dollar bill) may increase during deflation. Annual interest rates on savings can even become negative rather than the usual positive, as depositors may have to pay banks to safeguard the money.