Why is deflation such a problem?
A) It increases the value of debt, making it harder to pay it back.
B) It decreases the value of debt, making it harder to pay it back.
C) It increases the value of debt, making it easier to pay it back.
D) It decreases the value of debt, making it easier to pay it back.

Question

Quizplus · Accepted Answer

Deflation increases the value of debt, making it harder to pay it back, as prices and incomes fall. This creates a vicious cycle, as consumers and businesses are incentivized to delay their purchases and investments, leading to further declines in prices and economic activity. Additionally, deflation can lead to increased unemployment, as businesses cut back on production and employment to adapt to reduced demand. Therefore, deflation is generally viewed as harmful to the economy and is often a concern for policymakers.

Why Is Deflation Such a Problem