Presentation about

Causes of Deflation
Presented by- MD. Musfiqur Rahman
Dhaka International University
Dept.- BBA Batch- 63 Roll- 08
Good Evening, Everyone.

I am MD. Musfiqur Rahman. I am a student of Dhaka

International University of BBA Department. Today,
I am here to talk about the causes of Deflation.
 Do you know,
What is deflation and
What causes of Deflation?
Well, Let’s see a Picture!

What do you think about

this picture?
 Deflation
Deflation is a general decline in prices for goods and services,
typically associated with a contraction in the supply of money and
credit in the economy. During deflation, the purchasing power of
currency rises over time.
Now, Let’s see a picture about
causes of Deflation.
 Causes of Deflation

There are the two major causes of

deflation in an economy.
1. Fall in aggregate demand
2. Increase in aggregate supply
 Fall in the money supply
When the supply of money and credit falls, without a corresponding
decrease in economic output, then the prices of all goods tend to fall.
Periods of deflation most commonly occur after long periods of artificial
monetary expansion. The major contributor to this deflationary period
was the fall in the money supply following catastrophic bank failures.
 Decline in aggregate demand
A decline in aggregate demand typically results in subsequent lower
prices. Causes of this shift include reduced government spending, stock
market failure, consumer desire to increase savings, and tightening
monetary policies (higher interest rates).
 Deflation can become a self-reinforcing loop. Falling prices create
circumstances for prices to continue falling. With falling prices – firms
want to cut wages – lower wages lead to less spending (AD) and lower
costs. Falling prices lead to a decline in confidence, and therefore lower
spending and lower investment.
 Technological advances
Advances in technology or rapid application of new technologies in
production can cause an increase in aggregate supply. Technological
advances will allow producers to lower costs. Thus, the prices of products
will likely go down.
 Increase in unemployment
During deflation, the unemployment rate will rise. Since price levels are
decreasing, producers tend to cut their costs by laying off their employees.
Thank You