A columnist writing in the Wall Street Journal observed: "Franklin D. Roosevelt's March 1933 inaugural line that the only thing we have to fear is fear itself was inspiring, but wrong. There was plenty to fear, not least the deflation that then gripped the nation." Prices fall when a country experiences deflation, so isn't deflation good for consumers? A. No, borrowers would be hurt by the higher real interest rates and higher real value of debts that deflation causes. OB. Yes, deflation decreases prices, so when prices are falling, the purchasing power of money increases. OC. Yes, allowing the price level to fall is necessary before an economic recovery can begin. OD. It depends. The lower price level is always good for consumers as long as it doesn't lead to bank runs.

A columnist writing in the Wall Street Journal observed: "Franklin D. Roosevelt's March 1933 inaugural line that the only thing we have to fear is fear itself was inspiring, but wrong. There was plenty to fear, not least the deflation that then gripped the nation." Prices fall when a country experiences deflation, so isn't deflation good for consumers? A. No, borrowers would be hurt by the higher real interest rates and higher real value of debts that deflation causes. OB. Yes, deflation decreases prices, so when prices are falling, the purchasing power of money increases. OC. Yes, allowing the price level to fall is necessary before an economic recovery can begin. OD. It depends. The lower price level is always good for consumers as long as it doesn't lead to bank runs.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter6: How Statisticians Measure Inflation

Section6.A: How Statisticians Measure Inflation

Problem 6TY

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