Which of the following is not a consequence of deflation?
A. Deflation causes uncertainty about the future.
B. The threat of deflation can make people reluctant to borrow for long periods.
C. Deflation causes the real value of money to fall.
D. Firms may be reluctant to undertake investments for fear that the prices at which they can sell their output will drop.
Ans: C. Deflation causes the real value of money to fall.
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What will be an ideal response?
Which of the following best describes Keynes’ argument about the economy?
a. He argued the economy often produced less than its full potential because it was technically impossible to produce more with the existing workers and machines. b. He argued the economy often produced less than its full potential, not because lack of demand in the economy as a whole led to inadequate incentives for firms to produce, but because it was technically impossible to produce more with the existing workers and machines. c. He argued the economy often produced less than its full potential, not because it was technically impossible to produce more with the existing workers and machines, but because a lack of demand in the economy as a whole led to inadequate incentives for firms to produce. d. He argued the economy often produced less than its full potential because it was technically impossible to produce more due to inadequate incentives for firms to produce.