Japan experienced deflation for much of the 1990s and 2000s. During this period, consumers often delayed purchases of cars and electronics. Which statement best explains this consumer behaviour?

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Question

Japan experienced deflation for much of the 1990s and 2000s. During this period, consumers often delayed purchases of cars and electronics. Which statement best explains this consumer behaviour?

Accepted Answer

Consumers expected prices to fall further in the future — Award 1 mark for understanding that during deflation, consumers delay purchases expecting lower future prices. A is incorrect — this would encourage immediate spending. C is incorrect — deflation often reduces real incomes for those in debt. D is incorrect — nominal interest rates typically fall during deflation, though real rates may rise.

Answer

Consumers had more disposable income

Answer

Consumers expected prices to rise in the future

Answer

Consumers expected prices to fall further in the future

Answer

Consumers faced higher interest rates on borrowing

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