Easy to understand explanation of deflation and what causes it This pretty much went over my head:http://en.wikipedia.org/wiki/Deflation

Is there something a bit easier to digest than this? For a non econ student?
Krugman's classic story of a babysitting co-op never uses the word "deflation" but describes it perfectly. Go read it first.

Basically, if you think of money as a thing that has a price level, just as other things have prices, it's possible to imagine that price level falling relative to other goods (inflation) or doing the reverse (deflation). Inflation is, for some reason, easier for people to understand— it means that if you hold on to a $100 bill for a year, that bill will buy you less stuff next year than it'll buy you right now.

In contrast, if you're in a deflationary world, the money in your wallet will be able to buy more stuff a year from now than it can today, giving you an incentive to hang on to your money and wait to spend it. The problem is, if everyone does that, then the fact that everyone is trying to hold on to cash means that the value of cash continues to go up relative to goods (more deflation), which is known as a liquidity trap.