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JAMB Economics 1986 Question 36

Question 36

Money and Inflation

Deflation is a persistent fall in the general price level and is usually caused by

  1. A.a reduction in total demand
  2. B.an increase in government spending
  3. C.an increase in the money supply
  4. D.an increase in aggregate demand.
Show the answer and explanation

Answer: A (a reduction in total demand)

Explanation

When total spending in the economy falls, firms cut prices to sell their goods, causing deflation. The other options raise demand and prices.