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.
A local store begins offering ice cream bars at two for $5.00 instead of three for $5.00.
Deflation is a decline in the general price level of goods and services in an economy over a period of time. It increases the real value of money — that is, the purchasing power of currency goes up, allowing you to buy more with the same amount of money.
The event that indicates that deflation is occurring is:
A savings account can suddenly buy much more than before.
This is because, with deflation, the general prices of goods and services decrease, and therefore the same amount of money saved can purchase more items than it could prior to deflation. The other options do not specifically indicate deflation:
- The profits of a clothing factory increasing rapidly could be due to a variety of factors that are unrelated to deflation, such as increased efficiency, better marketing, or a new product line.
- The length of time it takes to pay off a home loan decreasing could be due to factors such as increased payments by the borrower, refinancing to a lower interest rate, or making extra payments, rather than deflation.
- A local store offering a different quantity of ice cream bars at a specific price point does not necessarily indicate a change in the general price level. It could be a promotion, a change in supplier costs, or a response to competition or inventory issues.
Therefore, the only response that directly indicates deflation is the increased purchasing power of money saved in a savings account.