Question

Which one of the following statements is an appropriate description of deflation?

(a) It is a sudden fall in the value of a currency against other currencies

(b) It is a persistent recession in both the financial and real sectors of economy

(c) It is a persistent fall in the general price level of goods and services

(d) It is a fall in the rate of inflation over a ** of time

Answer 1

(c) Deflation is a decrease in the prices of goods and services. It occurs when the annual inflation rate falls below 0% which is a negative inflation rate. This is different from Disinflation which is a slow-down in the inflation rate. This is a situation when inflation declines to lower levels but prices continue to rise.