ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Deflation is associated with an increase in interest rates, which will cause an increase in the real value of debt. As a result, consumers are likely to defer their spending.

Detailed explanation-2: -Interest rates tend to go up in periods of deflation, which makes debt more expensive. Consumers and businesses often decrease spending as a result.

Detailed explanation-3: -Deflation Creates Higher Rates of Unemployment In response to falling revenue, companies are forced to cut pay and layoff workers. This results in increased unemployment, incomes declining and consumer confidence decreasing.

Detailed explanation-4: -This pattern depresses spending and weakens the economy. At the same time, deflation worsens repayment burdens for borrowers, because the burden of repaying debt increases with deflation. This is because debts remain fixed in dollar terms, but wages and income typically fall during deflations.

Detailed explanation-5: -Deflation is when consumer and asset prices decrease over time, and purchasing power increases. Essentially, you can buy more goods or services tomorrow with the same amount of money you have today. This is the mirror image of inflation, which is the gradual increase in prices across the economy.