Economics · Macroeconomics and Monetary Theory
According to Irving Fisher, the 'Debt-Deflation Spiral' occurs during a economic crisis when:
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- 1Falling price levels increase the real burden of debt, triggering further liquidation and deflation✓
- 2Export revenues fall due to persistent domestic currency appreciation
- 3Government shrinks the broad money supply to service national debt
- 4Inflation erodes the real value of private debt burden
Correct answer
Falling price levels increase the real burden of debt, triggering further liquidation and deflation
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