Deflation is a great economic problem because:
A) prices and wages fall but debts remain the same.
B) prices fall more slowly than wages.
C) lower prices and wages promote unemployment.
D) prices and wages fall but interest rates remain the same.

Question

Quizplus · Accepted Answer

Deflation causes an increase in the real value of debt, as the debts remain the same but the purchasing power of money increases. This can make it difficult for borrowers to repay their debts and lead to defaults, bankruptcies, and a contraction of credit, which can worsen the economic downturn.

Deflation Is a Great Economic Problem Because