Deflation Can Leave Households That Have Mortgages with Negative Equity

question 2

Multiple Choice

Deflation can leave households that have mortgages with negative equity. This means that:

• A) deflation causes the value of the mortgage to fall.
• B) deflation transfers wealth from the bank to the household with the mortgage.
• C) deflation increases the real value of assets like housing.
• D) deflation causes the value of the house to be lower than the outstanding balance of the

---

Definitions:

Gestalt Principle

A theory that proposes humans naturally perceive objects as organized patterns and wholes, rather than as separate components.

Principle Of Closure

A Gestalt psychology principle suggesting that individuals perceive objects as whole, even when they are incomplete because our minds fill in missing details.

Perceptual Constancy

The recognition that objects are constant and unchanging even though sensory input about them is changing.

Size Constancy

The perceptual stability of the size of objects in view, despite variations in the size of the image on the retina due to changes in viewing distance.