What term describes a situation where prices continue to fall?

The term that describes a situation where prices continue to fall is deflation. Deflation refers to a decrease in the general price level of goods and services, which can occur due to various factors such as a decrease in consumer demand, an increase in production efficiency, or an oversupply of goods and services. When deflation is present, the purchasing power of money increases, meaning consumers can buy more with the same amount of money than before.

Understanding this concept is crucial because deflation can lead to reduced consumer spending, as people may delay purchases in hopes of lower prices in the future, ultimately affecting economic growth negatively. In contrast, the other terms have distinct meanings: recession refers to a period of economic decline, depression is a more severe and prolonged downturn than a recession, and stagflation is characterized by the combination of stagnant economic growth, high unemployment, and high inflation. These conditions do not specifically denote falling prices, making deflation the correct term for a situation where prices are consistently decreasing.