What is a common consequence of deflation?

Deflation, which is characterized by a persistent decrease in the general price level of goods and services, often leads to slowing economic growth. When prices are falling, consumers and businesses may anticipate that prices will continue to decline, which can result in delayed spending and investment. Consumers may choose to postpone purchases, hoping to buy goods at a lower price in the future. This behavior can decrease overall demand in the economy, leading producers to cut back on production and investment, ultimately slowing down economic growth.

Moreover, when deflation occurs, businesses may also face declining revenues, which can lead to cost-cutting measures, such as layoffs or wage reductions. This can have a detrimental effect on consumer confidence and spending, creating a downward economic spiral. In contrast, the other options listed either misinterpret the dynamics of deflation or suggest positive outcomes that are inconsistent with its common consequences. For instance, increased consumer spending typically occurs during inflationary periods when individuals are encouraged to buy now to avoid paying higher prices later.