Question

Which of the following best describes deflation?

1) a decrease in the cost of goods and services
2) an increase in the cost of goods and services
3) a decrease in purchases of a good or service
4) an increase in purchases of a good or service

Answer 1

Deflation is characterized by a decrease in the cost of goods and services, where money gains in purchasing power due to too few dollars chasing too many goods, often associated with major recessions or economic slowdowns.

Step-by-step explanation:

The best descriptor for deflation is a decrease in the cost of goods and services. Deflation happens when inflation rates are negative, meaning that money gains more purchasing power over time, as opposed to inflation where money buys a smaller percentage of a good or service each year. During deflation, there is typically an imbalance in the economy with too few dollars chasing too many goods. This can be a result of economic slowdowns, such as major recessions or events like the Great Depression, which are characterized by reduced consumer spending and lower levels of economic activity.