Effects of inflation/ deflation

Is inflation always bad?

• Yes!

• No!

• Depends!

Which of the following is not a possible consequence of severe inflation?

• Households will reduce their savings in banks.

• Produers will increase investment.

• Export revenue will fall.

• Export revenue will fall.

What is the main difference between inflation and deflation?

• Both inflation and deflation are increases in the general price level. Inflation is a sustained increase in the general price level, while deflation is an unsustained increase in the general price level.

• Both inflation and deflation are decreases in the general price level. Inflation is a sustained decrease in the general price level, while deflation is an unsustained decrease in the general price level.

• Inflation is a sustained increase in the general price level, while deflation is a sustained decrease in the general price level.

• Inflation is when the general price level is increasing at an increasing rate, while deflation is when the general price level is increasing at a decreasing rate.

Falling prices can lead to a higher standard of living if the fall is limited and temporary. True or false?

• True

• False

Deflation is detrimental to borrowers. True or false?

• True

• False

Why is deflation beneficial to consumers

• Consumers gain from higher wages.

• Consumers gain purchasing power.

• Borrowers need to pay back less in real terms.