Final answer:
Deflation can set off further deflation by creating a cycle of reduced spending and economic activity.
Step-by-step explanation:
Deflation occurs when the rate of inflation is negative, meaning that money has more purchasing power over time. This can set off further deflation by creating a cycle of reduced spending and economic activity. When prices are falling, consumers and businesses tend to delay their purchases and investments, leading to decreased demand and production. As a result, businesses may need to lower their prices even more to attract customers, leading to a further decrease in prices and reinforcing the deflationary cycle.