Deflation occurs when
A)aggregate demand increases at a persistently slower rate than aggregate supply.
B)aggregate demand increases at a persistently faster rate than aggregate supply.
C)the growth rate of potential GDP slows.
D)the quantity of money remains constant.
E)the quantity theory of money is disregarded.

Question

Quizplus · Accepted Answer

Deflation occurs when the overall demand for goods and services in an economy decreases, which can happen when aggregate demand increases at a persistently slower rate than aggregate supply. This can lead to a decrease in prices and economic activity, and can create a negative feedback loop as businesses reduce production and employment in response to lower demand.

Deflation Occurs When