The concept of deflation is opposite to inflation. It is defined as a situation when the general income level and price level are falling. It is also known as negative inflation. During deflation the income level falls against the available supply of goods and services.
In a two sector economy where there are firms and personals doing certain kind of economic transaction between each other the equilibrium occurs where C + I equals S + C or aggregate demand of the economy equals the aggregate supply of the economy.