Discussion
Deflation is
Answer: A
Correct answer: contraction in volume of money or credit that results in a decline of price level
Deflation is the monetary condition opposite to inflation: the volume of money or credit contracts and the general price level falls.
It is not a budget position. A deficit budget is expansionary, adding to demand, and would ordinarily work against deflation rather than constitute it; reduced taxation and increased public expenditure are expansionary for the same reason, so all three of the other options describe fiscal measures pointing the wrong way. Deflation is damaging in practice because falling prices raise the real burden of debt and encourage buyers to postpone purchases, which deepens the contraction.
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