The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth _____, and that creditors have a _____ propensity to consume than debtors.
A)from debtors to creditors; smaller
B)from debtors to creditors; larger
C)from creditors to debtors; smaller
D)from creditors to debtors; larger

Question

Quizplus · Accepted Answer

The debt-deflation hypothesis suggests that unexpected deflation increases the real value of debt, transferring wealth from debtors to creditors. Creditors typically have a smaller propensity to consume than debtors, leading to a decrease in overall demand and income.

The Debt-Deflation Hypothesis Explains the Fall in Income as a Consequence