Which of the following is a cause of deflation?

Deflation is characterized by a decrease in the general price level of goods and services, which can be caused by a reduction in the supply of money in an economy. When the quantity of money circulating is diminished, consumers and businesses have less cash available for spending. This can lead to lower overall demand for goods and services, which in turn drives prices down as sellers try to stimulate sales and clear inventory. Additionally, when money is scarce, people tend to save rather than spend, further exacerbating the decline in demand and contributing to deflationary pressures.

In contrast, increased government spending and a rise in the money supply typically have the opposite effect, stimulating demand and potentially leading to inflation rather than deflation. Higher consumer demand generally leads to increasing prices as businesses respond to a more competitive market by raising prices to balance supply with demand. Thus, the reduction in the supply of money serves as a primary mechanism leading to the deflationary trend.