Debt deflation occurs when A) an economic downturn causes the price l

Debt deflation occurs when

A) an economic downturn causes the price level to fall and a deterioration in firms’ net worth because of the increased burden of indebtedness.
B) rising interest rates worsen adverse selection and moral hazard problems.
C) lenders reduce their lending due to declining stock prices (equity deflation) that lowers the value of collateral.
D) corporations pay back their loans before the scheduled maturity date.

ANSWER

A