Which of the following may be indicated by lsquo deflation rsquo in the economy ........

Economic Affairs Inflation

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Which of the following may be indicated by ‘deflation’ in the economy?

GDP of the country has been growing at a negative growth rate.

Prices of all goods must have declined

The Central bank is following an easy monetary policy.

The demand in the economy is weak or supply is excess.

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Explanation:

In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels).

So, in a situation of deflation GDP may be growing, reducing or constant. Option (a) is wrong.

Deflation shows a general decline in prices of goods. It is not necessary that prices of all goods must have declined. So, (b) is not appropriate.

If Central bank follows an easy monetary policy, demand will be strong, and inflation is more likely than deflation. So, (c) is wrong.

Most appropriate option is (d) since prices of goods may decline if demand decreases given constant supply of goods. If demand is too weak, prices may reduce heavily.