Deflation—a sustained drop in the general price level of goods and services—represents the inverse of inflation, increasing money’s purchasing power but risking economic stagnation. Key characteristics include falling prices, reduced consumer spending, higher real debt burdens, and potential job losses. Causes range from decreased demand and technological advances to tight monetary policies, while effects can be short-term gains for consumers versus long-term risks like recessionary spirals. Historical examples like the Great Depression and Japan’s “Lost Decade” illustrate its dangers. Governments combat deflation through monetary easing and fiscal stimulus. This guide explores deflation’s mechanics, impacts, and policy responses.