The Problem of Debt Deflation Deepens During an Economic Slump

question 60

Multiple Choice

The problem of debt deflation deepens during an economic slump because:

• A) borrowers have to reduce spending to pay off debts.
• B) the Fisher effect raises the nominal interest rate during deflation.
• C) lenders have to reduce spending to accommodate higher returns from loans.
• D) the zero bound on the nominal interest rate is broken.

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Definitions:

Milgram Experiment

A psychological experiment conducted by Stanley Milgram in the 1960s to study obedience to authority, where participants were instructed to administer electric shocks to another person.

Stanford University Prison Experiment

A psychological study conducted by Philip Zimbardo in 1971 at Stanford University, where students were assigned roles of prisoners and guards to explore the effects of perceived power.

Generalization

Drawing a conclusion about a certain characteristic of a population based on a sample from it.

Logical Support

The provision of reasons or evidence to justify a claim or argument.