Question

Which of the following is true of deflation?

A) Deflation causes consumer prices to escalate, and consumers face ever-rising prices that eventually exclude many of them from the market.
B) In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers.
C) In countries with rapid deflation, the selling price must be related to the cost of goods sold and the cost of replacing the items.
D) In a deflationary market, an exporter need not place emphasis on controlling price escalation.
E) Deflation tends to decrease the real value of money over time.

Answer 1

The true statement about deflation is that in a deflationary market, companies must keep prices low and work on raising their brand value to gain consumer trust, as deflation causes the value of money to increase, discouraging spending.

Step-by-step explanation:

Among the options provided about deflation, the correct answer is B) In a deflationary market, it is essential for a company to keep prices low and raise brand value to win the trust of consumers. Deflation occurs when there is a decrease in the general price levels of goods and services, and this means that the value of money increases over time.

This can discourage spending and borrowing, as consumers and businesses anticipate lower prices in the future. Since money's purchasing power grows, people might hoard cash, reducing the money circulating in the economy, which can deepen a recession. As for companies, maintaining competitive pricing and building brand trust becomes essential to attract cautious consumers during such times.