Final answer:
Deflation decreases incomes and makes it more difficult for debtors to pay off their debts, as they have to repay loans with more valuable dollars than they originally borrowed.
Step-by-step explanation:
Deflation generally decreases incomes and reduces the ability of debtors to pay off their debts. This is because the value of currency increases, making each dollar worth more over time. Consequently, debts become harder to settle as debtors need to repay loans with money that is more valuable than when they first borrowed it. This can lead to a situation where there is a decrease in aggregate demand, potentially causing a recession. Moreover, it can result in unexpectedly high real interest payments for borrowers, which compounds their difficulties in repaying debts.