Multiple choice

Deflation means ____.

  1. reduction in taxation

  2. a contraction in the volume of money or credit that results in a decline of price level

  3. an increase in public expenditure

  4. prices would fall
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Deflation is a decline in the general price level, typically caused by a contraction in money supply or available credit. Option B correctly defines both the cause (monetary contraction) and effect (price decline), while option D only states the effect without explaining the economic mechanism.

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