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'''Deflation''' is a reduction of the amount of 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 last year then costs only 95 cents this year. The value of paper money (e.g., a [[dollar]] bill) may increase during deflation because of the shortage of dollars in circulation.
Deflation is the opposite of [[inflation]], but liberals consider deflation to be worse. The [[Great Depression]], for example, was characterized by deflation. [[Japan]] has struggled with deflationary forces since the mid-1990s.<ref>http://www.japantimes.co.jp/opinion/2017/03/29/commentary/japan-commentary/the-truth-about-deflation/#.WV7wq-kpCUk</ref>
Deflation is the opposite of [[inflation]], but liberals consider deflation to be worse. The [[Great Depression]], for example, was characterized by deflation. [[Japan]] has struggled with deflationary forces since the mid-1990s.<ref>http://www.japantimes.co.jp/opinion/2017/03/29/commentary/japan-commentary/the-truth-about-deflation/#.WV7wq-kpCUk</ref>
*the loss of manufacturing and other good-paying jobs, which results in less income for consumers and fierce shopping for bargains.
*the loss of manufacturing and other good-paying jobs, which results in less income for consumers and fierce shopping for bargains.
== Effect on [[Gold]], Interest rates, [[Stock market]], and [[Bond]]s ==
== Effect on [[gold]], [[interest rate]]s, [[stock market]], and [[bond]]s ==
Deflation causes declines in [[gold]] prices and interest rates, but increases in the value of long-term [[bond]]s and potentially the [[stock market]] as investors seek higher rates of return than bank deposits offer. However, rates of default on bonds can increase due to deflation as borrowers have difficult paying back the principal.
Deflation causes declines in [[gold]] prices and interest rates, but increases in the value of long-term [[bond]]s and potentially the [[stock market]] as investors seek higher rates of return than bank deposits offer. However, rates of default on bonds can increase due to deflation as borrowers have difficult paying back the principal.
*[https://www.investopedia.com/terms/d/deflationary-spiral.asp Deflationary spiral]
*[https://www.investopedia.com/terms/d/deflationary-spiral.asp Deflationary spiral]
== References ==
== References ==