When does deflation occur?

Deflation occurs in the economy when the prices of goods and services start falling. This happens due to reduced demand for the goods and services which results in reduction of prices and goods. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

In the short-term, deflation will increase the buying power of the consumers, and increase their savings. Deflation will reduce the circulation of money in the economy. 

Further readings:

  1. RBI – Know About Reserve Bank of India, Functions, Composition
  2. Monetary Policy Committee (MPC) – An Overview, Instruments of Monetary Policy

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