What financial term is used to denote the reduction in the general price level of goods and services?

Deflation is the financial term used to describe a decrease in the general price level of goods and services in an economy over a period of time. It indicates that prices are falling, which can lead to increased purchasing power for consumers, as the same amount of money can buy more goods and services than before.

Deflation often occurs in times of economic downturn when demand for goods and services decreases, prompting businesses to lower prices to attract customers. A prolonged period of deflation can be harmful to the economy, as it may lead to reduced consumer spending, lower business revenues, and potentially a deflationary spiral. Thus, this term is pivotal to understanding economic conditions and their impact on business performance and consumer behavior.

In contrast, inflation refers to the opposite phenomenon where the general price level rises, while stabilization relates to maintaining economic equilibrium, and recession describes an economic decline reflected by reduced economic activity.