IntroductionDifferent countries often see the same scenario in their economic forecasts, but the way they handle the situation and the outcome can differ greatly. The economic issue that will be discussed in this work is deflation. Two countries that offer an interesting debate are the United States and Japan. These two countries were going through a deflationary period around the same time, but with quite different outcomes. Each country's actions and policy implementations have led to different conclusions. 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 has fallen below zero. This declining price level may seem like a good thing as 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 degradation of the economy. This will eventually lead to a liquidity trap and can cause serious problems. The liquidity trap leads to predictions that a recession or depression could occur in the near future. A central bank's efforts are not enough to stimulate the economy and the interest rate will remain at zero or a very low level. With this information in hand, let's take a look at each country. Deflation in Japan The deflation to be discussed in Japan first began during and shortly after the Great Depression, but the focus for this comparison is on the early 1990s. Looking at an article by Kaoru Hosono... middle of the paper... to be reborn and avoid another liquidity trap. By using some tools to adjust its monetary base and inflation, Japan may be able to get out of the trap. Works CitedHerr, Hansjörg and Milka Kazandziska. "The labor market and deflation in Japan". International Journal of Labor Research 2.1 (2010): 79-98. ProQuest. Network. 1 December 2013. Svensson, Lars EO "Escaping the liquidity trap and deflation: the foolproof method and others." The Journal of Economic Outlook 17.4 (2003): 145-66. ProQuest. Network. December 1, 2013.Orphanides, Athanasios. Deflationary monetary policy: the liquidity trap in history and practice. Rochester:, 2004. ProQuest. Network. November 12, 2013. Kazuo Sato, The Liquidity Trap: Japan, 1996–2001 versus the United States, 1933–1940, Journal of Asian Economics, volume 19, issue 2, April 2008, pages 155-169, Web. 15 November. 2013.