Deflation Defined as Falling Prices

Steps:

• Recall that deflation is a sustained decrease in the general price level in an economy.
• Examine each choice against this definition to identify the direct match.
• Eliminate options that describe related but distinct economic concepts.
• Confirm the option that precisely captures the price level change.

Why A is correct:

• Deflation is defined as a negative inflation rate, where the average price level falls, allowing money to purchase more goods and services.

Why the others are wrong:

• B: A falling inflation rate means slowing price increases, but it can remain positive; deflation requires prices to actually decrease.
• C: Falling output indicates a recession, which may or may not involve deflation.
• D: The real value of money rises during deflation, as its purchasing power increases with lower prices.

Final answer: A