Which of the following is NOT a reason that deflation is considered a problem in an economy?
A) Unexpected deflation redistributes wealth.
B) There may be menu costs for reprinting restaurant menus and store price tags with lower prices.
C) The purchasing power of fixed incomes rises.
D) Unexpected deflation hurts borrowers, who must pay back dollars that are worth more than the dollars that they originally borrowed.

Question

Quizplus · Accepted Answer

Deflation is considered problematic primarily because it can lead to a decrease in consumer spending (as people anticipate further price drops), increase the real value of debt (hurting borrowers), and redistribute wealth in unpredictable ways. However, the rise in the purchasing power of fixed incomes, as mentioned in option C, is generally seen as a positive effect for those on fixed incomes, rather than a problem caused by deflation.

Which of the Following Is NOT a Reason That Deflation