Solved: Debt deflation is a. the effect of deflation in decreasing aggregate demand. b

Chapter 0, Problem 6

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QUESTION:

Debt deflation is a. the effect of deflation in decreasing aggregate demand. b. an idea proposed by Irving Fisher. c. a contributing factor in causing the Great Depression. d. due to differences in how borrowers/lenders respond to inflation losses/gains. e. all of the above.

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QUESTION:

Debt deflation is a. the effect of deflation in decreasing aggregate demand. b. an idea proposed by Irving Fisher. c. a contributing factor in causing the Great Depression. d. due to differences in how borrowers/lenders respond to inflation losses/gains. e. all of the above.

ANSWER:

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When the economic experience falls in price level because of huge loan default and the insolvencies of the bank, then it is called debt deflation. The currency of the country also rises; thus, the real value of the debt also rises.

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