Which of the following is a feature of the 'Debt-Deflation' theory associated with Irving Fisher?
A. Deflation always reduces the real burden of debt
B. Only inflation causes debt problems
C. Debt is irrelevant for the business cycle
D. Falling prices raise the real value of debt, leading to further declines in spending and prices
Answer: Option D
Solution (By JKSSB Mock Tests)
Fisher’s debt-deflation theory argues that an initial decline in prices increases the real burden of nominal debt, forcing distressed selling and further price declines in a downward spiral.
Explanation:
Default effects show that the pre-set option exerts a strong influence on behaviour; many people stick with the default even when opting out is easy, making defaults a powerful policy tool.
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