Skip to content

ACCA Applied Knowledge · Business and Technology · Macroeconomic factors

Which of the following is a likely harmful consequence for a business operating in an economy experiencing sustained deflation?

Customers may delay purchases because they expect prices to fall further, which reduces sales revenue. This spending delay is a typical damaging effect of deflation. The real value of debts actually rises in deflation, and rising costs and repricing costs are features of inflation.

  1. AThe real burden of its fixed-money debts falls over time
  2. BCustomers may delay purchases expecting lower prices, reducing sales revenueCorrect
  3. CInput costs are certain to rise faster than selling prices
  4. DMenu costs of repricing products increase significantly

Explanation

In deflation consumers expect prices to fall further and postpone spending, which depresses sales and revenue. Option A is wrong because deflation increases, not reduces, the real burden of fixed debts. Options C and D describe inflation-type effects.

Did you get it right without looking?

One question tells you little. A timed set on Macroeconomic factors shows your real accuracy, how long you take and where you lose marks.

Practise Macroeconomic factorsFree diagnostic mock

More Macroeconomic factors questions