Answer:
C. increases the velocity of circulation
Step-by-step explanation:
If the deflation happened unexpectedly, it will harmfully cause shortly:
- income redistribution
- wealth redistribution
- lowered GDP
- resource diverting from production
but the increased velocity of circulation should be caused buy the unexpected inflation not deflation.
Let's explain what the deflation is and which general causes it has:
In contrast to inflation, deflation is the process of lowering the overall price level or increasing the value of money in the absence of a reduction in goods and services.
There are always reasons to beware of deflation. These are:
1) While consumers are not in a hurry to buy goods in the future with the hope of falling prices, there is a delay in demand, while demand for goods declines. In addition, prices are falling in response to a declining student.
2) Salary projections are also declining, and consumers are more likely to save than spend money.
3) The volume of bank loans is also reduced, as repayment of interest rates that are larger than the loans themselves is not beneficial to the borrower.Buyers are exposed to losses along with a decrease in the price of their goods over time.
4) The higher the borrower's debt, the worse it is: in case of deflation, wages are reduced, and the debt remains the same.
5) During inflation there is no upper limit of interest rates, and in deflation they go to zero. Banks do not offer 0% credit, and when rates are above zero, banks make money, but borrowers have to make losses here.
6) Companies' profits also decrease during deflation, which results in lower securities prices. This worries private investors who want to keep their profits out of dividends.
7) Unemployment increases while companies' struggles to make a profit, and their wages decrease. These processes have a negative impact on the economy as a whole.