What causes deflation?

1. Money Supply

One of the main causes of deflation is a fall in money supply but more specifically, a decline in the circulation of money would lead to less money going around.

2. Debt

After a credit bubble like the one experienced in the United States in 2008, has led to people seeking to pay off debts. This led to a decline in the circulation of money.

3. Lending

Borrowed money is generally spent in an economy, which increases the circulation of money. So when credit tightens and loans are harder to qualify for, this can negatively affect the circulation of money.

Explanation:

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