Deflationary spiral

Right, so you're having an economic recession / slowdown / slump or whichever way you want to call it. And when people are expecting a fall in wages or retrenchment, they aren't gonna spend much. On the contrary, they had better save for the rainy days.

As a result, consumer spending falls and when that happens, firms are going to suffer as revenue and profits decreases. They are hence left with no alternatives but to decrease wages or start laying off people. At the same time, they'd have to lower prices to cope with the low aggregate demand. Hence, the low aggregate demand transfers to a fall in prices. As people expect futher deflation, they delay their purchases in anticipation ...