Deflation occurs when
A)the growth rate of potential GDP slows.
B)aggregate demand increases at a persistently faster rate than aggregate supply.
C)aggregate demand increases at a persistently slower rate than aggregate supply.
D)the quantity of money remains constant.
E)the quantity theory of money is disregarded.

Question

Quizplus · Accepted Answer

Deflation occurs when aggregate demand increases at a persistently slower rate than aggregate supply, causing a decrease in the general price level. This can be caused by a decrease in consumer spending, a decrease in investment, or a decrease in the money supply.

Deflation Occurs When