What Effect Does Deflation Have on Consumption and Investment

question 147

Multiple Choice

What effect does deflation have on consumption and investment?

• A) Deflation increases the rate of both consumption and investment.
• B) Deflation slows the rate of both consumption and investment.
• C) Deflation slows the rate of investment but increases the rate of consumption.
• D) Deflation causes firms and households to consume more and save less.

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Definitions:

Weighted Average Cost of Capital (WACC)

A calculation of a company's cost of capital where each category of capital is proportionally weighted, including equity, debt, and other forms of financing.

Operating Costs

Expenses associated with the day-to-day functions of a business, excluding the cost of goods sold.

Net Operating Working Capital

The difference between a company's current assets and its current liabilities, excluding short-term debt. It is indicative of a company's operational liquidity.

Balance Sheet

A report that provides an overview of a business's financial position, including what it owns (assets), owes (liabilities), and the value that remains for the shareholders (equity) at a particular moment.