Deflation ends with
A)an increase in the growth rate of the money stock.
B)a one-time increase in the quantity of money.
C)a rise in the interest rate.
D)a decrease in the growth rate of the money stock.
E)a one-time decrease in the quantity of money.

Question

Quizplus · Accepted Answer

Deflation is a decrease in the overall level of prices, which can be caused by a decrease in the quantity of money circulating in the economy. Thus, to end deflation, there needs to be an increase in the quantity of money, which can be achieved by increasing the growth rate of the money stock (e.g. through expansionary monetary policy). This would increase demand in the economy, leading to an increase in prices and a decrease in deflation. Therefore, choice A is the best answer.

Deflation Ends with