[Char143]

Which of the following actions is the acknowledged preventive measure for a period of deflation?

A. Increasing interest rates.
B. Increasing the money supply.
C. Decreasing interest rates.
D. Decreasing the money supply.

The answer is B, wouldn’t that be worse and lower the value of money even more?

Help :/

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Accountant183748]

I remember it as inflation is when there is too much cash and deflation is when there isn't enough.

Think of what is happening in Venezuela. They printed tons of cash now their 100 bill is worth less than 10 cents! So deflation is vice versa.

[Char143]

I thought deflation meant that the dollar has lost its value. Increasing the supply of money will even further reduce the value of the dollar.. at least I thought this?

I don't believe deflation is vice versa of your example, your example is deflation (in my head it is), and vice versa of your example would be inflation…

I could be super wrong, BUT it wouldn't make sense to me otherwise. I have googled the definition and I THINK the way I am thinking of it is correct, but this question confuses me.

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Accountant183748]

I remember it as inflation is when the dollar loses it's value either because there is too much cash or the prices have gone up. Like how back in the 50s $20 would buy a cart full of groceries and now we can only buy a few things with $20. That is inflation.

What is happening in Venezuela is inflation too, because they printed a lot of cash so now the cash isn't worth what it used to be and you can't buy as much as you used to with the same amount of cash. I just saw a video on this and they were saying the 100 bill in Venezuela is worth less than 10 cents and the prices have gone up so you literally need a truckload of 100 bills to buy a couch due to inflation.

Then I just remember that deflation must be the opposite.

[eaglescpa]

Deflation is when the general level of prices for goods and services decreases. So the actual value of the dollar increases. Inflation is when the general level of prices for goods and services increases. So actual value of the dollar decreases.

Increasing the money supply would stimulate demand and combat deflation by increasing price levels.

[Char143]

Okay I think I had this all backwards, thank you Vannessa and Eagle. I guess I should look at deflation and inflation more with goods and services and not the actual dollar. I was thinking deflation was more “the value of a dollar deflated” but really the good or service price deflated which means the dollar is worth more…I think I understand now, thank you so much!

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Author]

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