Deflation occurs when there is a decline in which of the following?

• A. the gross domestic product (GDP)
• B. the general price level of goods and services
• C. the unemployment rate
• D. the supply of money

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of deflation. Deflation refers to a decrease in the general price level of goods and services in an economy over a period of time.
2. Step 2: Recognize that deflation is not directly about the total output (GDP), unemployment rate, or money supply, although these can be related to economic conditions.
3. Step 3: Recall that the general price level is often measured by price indices such as the Consumer Price Index (CPI) or the GDP deflator, which track average prices across a basket of goods and services.
4. Step 4: Identify that a decline in the general price level means that, on average, prices are falling, which is the hallmark of deflation.
5. Step 5: Conclude that deflation specifically occurs when there is a decline in the general price level of goods and services, not necessarily in GDP, unemployment, or money supply.