Causes

• Deflation is a fall in the amount of money in circulation, and a rise in the value of money. It occurs when credit conditions are tight and it's tough for people and businesses to get loans.
  
  

Effects

• The supply of goods relative to money increases. When credit is tight, the economy slows, and as a result of these conditions the prices of goods, services, and assets fall.
  
  

Wages and Loans

• In a deflationary environment, wages are stagnant or fall. Outstanding loans become more expensive as the value of money increases. If consumers put off purchases, believing that goods will continue to grow cheaper, manufacturers lose money and start laying off workers.
  
  

Real Estate

• The market value of real property, such as homes and land, falls along with the availability of credit. Investors shy away from long-term investments such as property, so the market stagnates.
  
  

Reinflation

• The cure is reinflation, in which more money circulates and interest rates fall. The Federal Reserve, the agency controlling the money supply in the United States, can lower interest rates it charges to banks or buy securities in the open market to increase the supply of money.