Deflation refers to the phenomenon that the money supply decreases, which leads to falling prices, slowing economic activities and rising unemployment rate. Deflation has the following effects on the economy:

1. If the holder of the physical assets is damaged, the cash assets will appreciate.

2. Creditors with fixed interest rates gain, while debtors suffer.

3. Deflation reduces corporate profits, and some wealth is transferred to residents; Deflation makes the real interest rate of corporate debt rise, and the income is further transferred to individuals.

4. The transfer of government wealth to the public.

Deflation control can take the following measures:

(1) Implementing a proactive fiscal policy, increasing state investment in infrastructure and expanding domestic demand will help curb deflation.

(2) Strengthen financial policy support, stimulate and expand the scale of credit by reducing the deposit reserve ratio, adjusting the discount rate of commercial bills, and implementing preferential loan interest rates for some industries.

(3) Accelerate the adjustment of industrial layout and structure, vigorously support the development of agriculture, science and technology, environmental protection and other industries by means of fiscal and taxation, and restrict the production and circulation of products with high energy consumption, high pollution and low added value, so as to achieve the purpose of adjusting economic structure and promoting economic development.

(4) Implement a moderately loose monetary policy to stimulate aggregate demand and promote economic growth by cutting interest rates and increasing money supply.

(5) Deepen the reform of the economic system, further improve the operating mechanism of the market economy through the reform of the fiscal, taxation and financial systems, enhance the regulatory role of the market mechanism, and promote the rational allocation of resources.