Consider the following statements : 1. When the inflation decreases, but still remains positive, it is deflation. 2. Deflation reduces the real value of money over time. 3. Historically not all episodes of deflation correspond with periods of poor economi

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Q: 74 (CAPF/2009)
Consider the following statements :
1. When the inflation decreases, but still remains positive, it is deflation.
2. Deflation reduces the real value of money over time.
3. Historically not all episodes of deflation correspond with periods of poor economic growth.
Which of the statements given above is/are correct ?

question_subject: 

Economics

question_exam: 

CAPF

stats: 

0,47,78,31,23,47,24

keywords: 

{'deflation correspond': [0, 0, 1, 0], 'deflation': [0, 0, 2, 1], 'inflation': [0, 1, 0, 3], 'poor economic growth': [0, 0, 1, 0], 'real value': [0, 0, 1, 0]}

The correct answer is option 3, which states that only statement 3 is correct.

Statement 1 is incorrect. When the inflation decreases but still remains positive, it is not considered deflation. Deflation refers to a sustained decrease in the general price level of goods and services over time, resulting in negative inflation.

Statement 2 is also incorrect. Deflation actually increases the real value of money over time. This means that the purchasing power of money increases as prices decrease.

Statement 3 is correct. Historically, not all episodes of deflation have corresponded with periods of poor economic growth. It is commonly believed that deflation is harmful to the economy because it can lead to reduced consumer spending and investments. However, there have been instances where deflation has occurred alongside periods of economic growth.

In conclusion, only statement 3 is correct. Deflation refers to a sustained decrease in the general price level of goods and services over time, but it does not always lead to poor economic growth.

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