Deflation usually arises due to ________. This in turn ________ interest rate, which ________.
A) loose fiscal policy; reduces the market; causes hyperinflation
B) tight monetary policy; pushes up the nominal; always leads to a recession
C) a recession; raises the real; deepens the recession
D) an exchange rate depreciation; lowers the real; makes imports more expensive
E) oil price declines; increases the mortgage; slows housing price growth

Question

Quizplus · Accepted Answer

Deflation usually arises due to a recession, which leads to a decrease in prices of goods and services. This can cause a rise in the real interest rate (nominal interest rate adjusted for inflation), as lenders are less likely to lend money if they anticipate further price declines. However, this can deepen the recession as borrowing becomes more expensive and consumers delay spending.

Deflation Usually Arises Due to ________