IntroductionDifferent countries often consider the same scenario in their economic forecasts, but the way they handle the situation and the results can differ significantly. The economic question that will be addressed in this work is deflation. Two countries offer an interesting debate: the United States and Japan. These two countries were experiencing a deflationary period at around the same time but with quite different results. Each country's actions and policy implementation have led to a different conclusion. Deflation occurs when the price level of general goods and services begins to fall. At this point, the economy's inflation rate will be negative, as it will have fallen below zero. This drop in the price level may seem positive in that it technically increases the monetary value of the currency, meaning the currency goes further, but the negative effects outweigh this. The effects of deflation can lead to higher unemployment, increased debt values, lower capital investment, and clouded customer demand. All these signs lead to a contraction and deterioration of the economy. This will eventually lead to a liquidity trap and could cause serious problems. The liquidity trap leads to predictions that there could very well be a recession or depression in the near future. The efforts of a central bank are not enough to stimulate the economy and the interest rate will remain zero or very low. With this information in hand, let's look at each country. Looking at an article by Kaoru Hosono...... middle of paper......to get back on track and avoid another liquidity trap. By using a few tools to help it adjust its monetary base and inflation, Japan may well find its way out of the trap. Works Cited Herr, Hansjörg and Milka Kazandziska. “The labor market and deflation in Japan.” International Journal of Labor Research 2.1 (2010): 79-98. ProQuest. Internet. December 1, 2013. Svensson, Lars EO “Escaping from a liquidity trap and deflation: the foolproof method and others”. The Journal of Economic Perspectives 17.4 (2003): 145-66. ProQuest. Internet. December 1, 2013.Orphanides, Athanasios. Monetary policy in deflation: the liquidity trap in history and practice. Rochester:, 2004. ProQuest. Internet. November 12, 2013. Kazuo Sato, The liquid trap: Japan, 1996-2001 versus the United States, 1933-1940, Journal of Asian Economics, Volume 19, Number 2, April 2008, Pages 155-169, Web. November 15. 2013.