Question

The cause of Deflation is ____________.

• A. lack of goods and services as compared to money supply
• B. lack of imports as compared to exports
• C. lack of money supply as compared to supply of goods and services
• D. none of the above

Answer 1

Answer: (C)

lack of money supply as compared to supply of goods and services

Deflation is the reverse case of inflation. Deflation is that state of falling prices which occurs at that time when the output of goods and services increases more rapidly than the volume of money in the economy. In the deflation the general price level falls and the value of money rises.