Which of the Following Is a Major Problem with Deflation

question 103

Multiple Choice

Which of the following is a major problem with deflation?

• A) Money loses value so rapidly that economic agents will be reluctant to hold money.
• B) Economic agents tend to put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity.
• C) Low prices for goods and services tend to result in massive shortages in most markets.
• D) Money supply cannot keep pace with consumption spending.

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Definitions:

Credit Terms

Agreed upon conditions under which a buyer can pay at a later time for goods or services received, typically specifying the time period and any discount for early payment.

Perpetual Inventory System

An accounting method that records inventory transactions in real-time, immediately affecting the inventory account whenever an item is received or sold.

Discount Period

The time frame between the onset of a payment period and the due date when a discount for early payment is available.

Perpetual Inventory System

An inventory management system where updates to inventory records are made in real-time with each sale or purchase, providing a continuous record of inventory levels.