Deflation:
A) can cause increases in output.
B) can cause budget surpluses.
C) can cause decreases in output.
D) will not affect output.

Question

Quizplus · Accepted Answer

Deflation, which is a decrease in the overall price level, can cause a decrease in output as businesses and households cut back on spending. This can lead to lower production levels, layoffs, and reduced economic activity. Choice A and B are incorrect as deflation typically has the opposite effect of causing decreases in output and budget deficits due to a decrease in government revenue from taxes. Choice D is also incorrect as deflation can have significant impacts on output and the overall economy.