The Reduction in Aggregate Demand Caused by Deflation

question 98

Multiple Choice

The reduction in aggregate demand caused by deflation:

• A) further reduces prices, causing a deflationary spiral.
• B) will decrease production and increase prices, causing inflation to adjust the price level.
• C) further reduces prices, causing aggregate supply to shift left back to long-run equilibrium.
• D) will decrease production and increase prices, causing a deflationary trap.

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