Deflation

Real World Example

During the Westward Expansion in the 1800s, deflation was significant because it meant that the prices of goods and services were dropping, making it harder for farmers and settlers to make a profit. This was important because many people had taken out loans to buy land and equipment, and lower prices made it difficult to pay off these debts. Deflation responded to the overproduction of crops and goods, as more people moved west and increased supply without a matching demand. Today, deflation still matters because it can lead to less consumer spending and lower wages, affecting the economy negatively. For example, if prices at the grocery store drop significantly, farmers might earn less money, which can affect their ability to maintain their farms and livelihoods.