What did Fisher's theory of debt deflation explain?
Economic downturns
Economic booms
Stable economies
Economic stagnation
Answer
Economic downturns, as explained by Fisher's theory of debt deflation, occur when a decrease in the price level leads to an increase in the real value of debt. This increase in real debt burden makes it more difficult for borrowers to repay their obligations, leading to defaults and a reduction in spending. The resulting decline in aggregate demand further exacerbates the deflationary spiral, causing a prolonged economic downturn.
Irving Fisher Trivia: 31 Questions to Test Your Memory
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