Deflation: prices going down

Deflation is a persistent decrease in the average price level for a sustained period of time.  Deflation can be good, deflation can be bad.  "Good" deflation occurs when the LRAS shifts out symbolizing economic growth.  Economic growth occurs when the quality or quantity of FoPs is increased.  As we can see in the graph below, a rightward shift in LRAS leads to a fall in APL, showing deflation.

Yet, there is also "bad" deflation.  This occurs when aggregate demand falls in the economy, leading to a decrease in output (meaning more unemployment) and a falling average price level (deflation).  See the graph below:

A neo-Classical economist would argue that in the long run, the fall in the average price level would make the production process cheaper and thus eventually shift the SRAS out so that the full employment level of output is again achieved.