Money's store of value function drives demand fall in deflation

Steps:

• Deflation means falling prices, increasing money's purchasing power over time.
• As a store of value, money holds or gains real value during deflation.
• People hoard money instead of spending, reducing aggregate monetary demand.
• This hoarding explains the drop in overall demand for money in transactions.

Why D is correct:

• Store of value means money retains purchasing power; in deflation, it appreciates, encouraging saving over spending, which lowers aggregate demand per the quantity theory of money (MV = PY, where velocity V falls).

Why the others are wrong:

• A: Measure of value sets price units but doesn't explain demand shifts from price changes.
• B: Medium of exchange facilitates transactions; deflation reduces transactions, not the function itself.
• C: Standard for deferred payment aids loans; deflation raises real debt burdens but doesn't directly cause aggregate demand fall.

Final answer: D