• Definition: Imagine prices at the mall going down for everything! Sound good? Well, maybe not. Deflation is when average prices keep decreasing. It's like a never-ending sale, but it's actually bad for the economy.
• Real-World Example: If the CPI (Consumer Price Index) was 145.65 in 2019 and 142.95 in 2020, the inflation rate would be -1.85%. Prices went down, so we call that deflation.

•  Falling Demand: If people stop buying stuff, demand falls, leading to deflation. Think of it like everyone suddenly hating video games, so the prices drop. COVID-19 caused a huge drop in spending, making deflation a real concern.
•  Increasing Supply: Sometimes called "good deflation," this can happen when businesses become more productive. Imagine if a robot could make cookies super fast; more cookies mean cheaper prices!

Deflation might seem cool (cheaper smartphones!), but here's why it's actually a horror movie for the economy:

• Delaying Purchases: Why buy a new bike today if it'll be cheaper tomorrow? This thinking leads to even less spending.
• Businesses Struggle: Less money coming in means cutting costs, firing people, and sometimes going bankrupt. 🏢💥
• Unemployment Rises: With businesses in trouble, more people lose their jobs.
• Banking Crisis Risk: People struggle to pay loans, leading to bad loans. Think of it as the bank's cookie jar breaking! 🍪💔
• Deflationary Spiral: It's like a snowball effect - deflation leads to more deflation. An economy stuck in this spiral is like a car stuck in the mud. 🚗💩
• Hard to Fix: Policymakers might run out of tools to fix the problem. It's like trying to fix a broken phone with a hammer - not many options!