1. A progressive reduction in the price level. This would make real interest rates exceed nominal interest rates, which might make it impossible to lower nominal interest rates during a slump sufficiently to make real investment appear profitable. This is known as the liquidity trap.
2. A reduction in activity due to lack of effective demand. This could be brought about deliberately by the monetary authorities in order to reduce inflationary pressure, or could occur through a collapse in confidence which the authorities were unable to avert. See also debt deflation.