Why is deflation such a problem?
A)It increases the value of debt.
B)It slows consumption.
C)It slows investment.
D)All of these statements are true.

Question

Quizplus · Accepted Answer

Deflation causes a decrease in the general price level of goods and services, which means that borrowers have to pay back their debts with more valuable money than the money they borrowed initially. This increases the value of debt (A), making it harder for borrowers to repay their obligations. It also slows consumption (B) as people tend to delay purchases in anticipation of lower prices. This leads to reduced demand for goods and services, which can lead to businesses cutting production and jobs, and in turn, further exacerbate the problem. Deflation also slows investment (C) as people tend to hold onto their money rather than investing it, which can reduce economic activity and growth. Therefore, all the statements (A, B, and C) are true, and deflation is a problem that needs to be addressed by policymakers.

Why Is Deflation Such a Problem