Deflation occurs in an economy when there is a contraction in the money supply.

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Quizplus · Accepted Answer

Deflation is the opposite of inflation and occurs when the overall price level in an economy decreases. This can happen when there is a contraction in the money supply, which can lead to decreased spending and reduced demand for goods and services. As a result, prices may fall as businesses try to attract customers by offering lower prices.

Deflation Occurs in an Economy When There Is a Contraction