eliotn:If prices face a general decrease, what are the possible reasons?
Either deflation of the currency, such as in Iraq when we destroyed theirs causing the value of Iraqi money to skyrocket, or production improvements that cause the cost of creating goods to fall.
eliotn:Conversely, what are the possible reasons for increasing prices?
There is really only one reason for all prices to generally increase, and that is monetary inflation. Since production processes will improve over time the natural progression would be for everything to get cheaper, minus huge disasters. The costs of individual goods might go up with demand, but the overall general prices should tend to decline.
"And, what is the most accurate measure of inflation and deflation?"
Depends on your definition of inflation and deflation here. Inflation is the increase in the money supply, not in prices, so the easiest way to measure inflation is to count how much new money was created. This is very easy should they choose to do it. If you mean the best way to measure price inflation, take the cost of general commodities one year and compare them to the next. This could also be done fairly easily, but the Fed manipulates this data as much as they can to keep the cpi low. Hedonic adjustments are made and whole sections of goods are left out (such as food and health care) because they "vary too much".
eliotn:He argued that if there was the right level of inflation, that would be good for the economy.
For some reason people have it in their heads that the economy cannot expand if the money supply doesn't expand with it. I don't know where this comes from and I can't find any logic to it, but it's very common.