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:

Consumption

The use of goods and services by households or individuals, typically measured in economic studies to assess economic activity or well-being.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can afford with a given budget at prevailing prices.

Income

Money received, especially on a regular basis, from work, property, or investments.

Utility Function

A mathematical representation of a consumer's preference ordering over a set of goods or outcomes.