Questions: 5. A country is said to be experiencing deflation when a. prices of most goods and services are falling over time. b. total output is rising over time. c. prices of most goods and services are rising over time. d. total output is falling over time.

The answer is A: prices of most goods and services are falling over time.

Explanation for each option:

a. Prices of most goods and services are falling over time.

• This is the correct definition of deflation. Deflation occurs when the general price level of goods and services decreases, leading to an increase in the real value of money. This can result from a reduction in the supply of money or credit, or a decrease in demand for goods and services.

b. Total output is rising over time.

• This statement describes economic growth, not deflation. When total output (or Gross Domestic Product, GDP) is rising, it indicates that the economy is producing more goods and services, which is generally a sign of economic health.

c. Prices of most goods and services are rising over time.

• This describes inflation, not deflation. Inflation occurs when the general price level of goods and services increases, leading to a decrease in the purchasing power of money.

d. Total output is falling over time.

• This situation describes an economic recession or contraction, not deflation. While deflation can occur during a recession, the two are not synonymous. A recession is characterized by a decline in economic activity and output, whereas deflation specifically refers to falling prices.