Which one of the following statements is an appropriate description of deflation?
- It is a sudden fall in the value of a currency against other currencies
- It is a persistent recession in both the financial and real sectors of the economy
- It is a persistent fall in the general price level of goods and services
- It is a fall in the rate of inflation over a period of time
Explanation
Option (c) is correct
- Deflation is defined in standard economics texts as a sustained decrease in the general price level of goods and services over a period of time. It reflects negative inflation and is associated with reduced consumer spending, falling demand and economic slowdown. A sudden fall in the value of a currency against other currencies refers to depreciation, not deflation. A persistent recession refers to a decline in economic activity, not prices. A fall in the rate of inflation means disinflation, not deflation.
