DP Econ Deflation

1. What is deflation?

• A sustained rise in the price level
• A sustained fall in the price level
• A situation with no inflation
• A temporary fall in the price level

2. What economic behavior does deflation typically encourage among consumers?

• Increasing consumption
• Delaying purchases
• Buying more luxury items
• Reducing savings

3. How can deflation affect businesses?

• Increase investment
• Delay investment
• Increase wage rates
• Hire more workers

4. What happens to debtors in a deflationary period?

• Their loan burden decreases
• They benefit from low interest rates
• Their loan burden increases
• They find it easier to borrow money

5. What is a redistributive effect of deflation?

• Debtors benefit from increased purchasing power
• Inequality is reduced
• Creditors lose purchasing power
• Creditors benefit from increased purchasing power

6. Which is a possible consequence of deflation on unemployment?

• Increased cyclical unemployment
• Reduced structural unemployment
• Lower cyclical unemployment
• Increased frictional unemployment

7. How does deflation affect the real value of debt?

• Increases it
• Decreases it
• Leaves it unchanged
• Doubles it

8. What is an effect of deflation on monetary policy effectiveness?

• It increases the effectiveness
• It has no effect
• It reduces the effectiveness
• It doubles the effectiveness

9. What is the difference between deflation and disinflation?

• Deflation is a decrease in the rate of inflation, while disinflation is an increase in the price level
• Deflation is an increase in the price level while disinflation is a decrease in the rate of inflation
• Deflation is a sustained decrease in the price level while disinflation is a reduction in the rate of inflation
• They both mean the same thing

10. What is a distinguishing feature of good deflation?

• It results from technological advancements
• It stems from reduced consumer spending
• It is marked by rapid wage increases
• It is caused by central bank policies