In debt deflation, deflation raises the cost of existing debt by increasing the value of money needed to pay it off, leading to a(n) _____ in aggregate _____.
A) increase; supply
B) reduction; supply
C) increase; demand
D) reduction; demand

Question

Quizplus · Accepted Answer

In debt deflation, deflation causes the value of money to increase, which means it takes more money to pay off existing debts. This results in a reduction in aggregate demand, as people and businesses have less money to spend and invest due to the increased burden of servicing their debts.

In Debt Deflation, Deflation Raises the Cost of Existing Debt