Explain why deflation could prevent people from being able to repay their debts
What will be an ideal response?
When an economy experiences deflation, or falling price levels, wages can actually decline. If someone has an outstanding loan that needs to be paid off, a decrease in wages will make it harder to pay the loan, since outstanding loan amounts will not decrease with deflation and the decrease in wages.
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The amount of money that someone would pay today for the right to receive a future payment is called
a. the present value of the future payment b. the determinate value of the future payment c. the interest rate d. the principal e. the time discount
The Fed conducts an open market sale of Treasury bills of $5 million. If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?
a. $25 million b. $5 million c. 0 d. ?$5 million e. ?$25 million