Which event indicates that deflation is occurring?
(1 point)
Responses
A savings account can suddenly buy much more than before.
A savings account can suddenly buy much more than before.
The profits of a clothing factory increase rapidly.
The profits of a clothing factory increase rapidly.
The length of time it takes to pay off a home loan decreases by five years.
The length of time it takes to pay off a home loan decreases by five years.
A local store begins offering ice cream bars at two for $5.00 instead of three for $5.00.
Deflation is a decrease in the general price level of goods and services. It is characterized by an increase in the value of money, meaning that each unit of currency buys more goods and services than it did previously. While none of the given examples are classic indicators of deflation by themselves, one does suggest an increase in the purchasing power of money, which aligns with the concept of deflation.
The statement "A savings account can suddenly buy much more than before" implies that the money saved is now more valuable if it can purchase more goods or services than it used to. This could be a consequence of deflation, as prices for goods and services decrease, meaning that the same amount of money now has more buying power. Therefore, this response is the one that most closely indicates that deflation is occurring.
The other options describe situations that could be influenced by a variety of factors other than deflation:
- The profits of a clothing factory could increase for many reasons such as higher efficiency, better management, or increased demand, and not necessarily due to deflation.
- The length of time it takes to pay off a home loan might decrease because of factors like increased payments by the borrower or a change in interest rates rather than deflation.
- A local store offering ice cream bars at a different price could be due to a promotion, changes in supply or demand, or cost cuts, and doesn't necessarily reflect overall deflation.