A situation where prices (including wages) are falling and leading to an inability to service existing debts is which of the following?
A)an opportunity for program trading
B)a debt deflation
C)an opportunity for refinancing and growth
D)disinflation

Question

Quizplus · Accepted Answer

A debt deflation occurs when falling prices lead to an inability to service existing debts. This can trigger a spiral of defaults and further deflation, as borrowers sell assets to cover their debts, driving prices down further. It is a harmful situation for the economy and can lead to deep and prolonged recessions or even depressions. A is incorrect, as program trading is not related to falling prices or debt deflation. C is also incorrect, as falling prices and debt deflation can make it difficult to obtain new sources of financing and can stifle growth. D is incorrect, as disinflation refers to a decrease in the rate of inflation, not necessarily falling prices or debt deflation.

A Situation Where Prices (Including Wages) Are Falling and Leading