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Which of the following actions is the acknowledged preventive measure for a period of deflation?
Suggested Answer: A
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Choice 'a' is correct. As the cost of carrying inventory decreases, safety stock would tend to increase to reduce the risk of stock outs.
Choice 'b' is incorrect. As sales become more predictable (sales variability decreases), less (not more) safety stock would be needed because the risk of stock outs would have decreased.
Choice 'c' is incorrect. If the cost of stock outs decrease, safety stock would decrease.
Choice 'd' is incorrect. If lead-time decreases, safety stock would decrease.
35 comments · newest first
BL
Blythe
10 months ago
I thought decreasing the money supply was a thing?
EL
Elise
11 months ago
Decreasing interest rates helps too, but B is better.
GE
Georgeanna
11 months ago
Wait, are we sure about that? Sounds off.
AL
Allene
11 months ago
Totally agree, B is the right answer!
CL
Claribel
11 months ago
Increasing the money supply is key during deflation.
FR
Franchesca
12 months ago
I’m leaning towards option B, but I also remember something about how decreasing interest rates can help too. It's a bit confusing!
DE
Delisa
12 months ago
I feel like increasing interest rates would actually make deflation worse, but I can't recall the exact reasoning behind it.
EU
Eulah
12 months ago
I remember practicing a question like this, and I think decreasing interest rates is often recommended to stimulate spending.
BU
Bulah
1 year ago
I think increasing the money supply is usually the right move during deflation, but I'm not completely sure.
BE
Bea
1 year ago
I've got this one! The textbook says the acknowledged preventive measure for deflation is increasing the money supply. So the answer is B. Feeling confident about this one.
AR
Aretha
1 year ago
I'm a bit confused on this one. Is it C, decreasing interest rates? Or is that for inflation? Ugh, I need to review my notes on monetary policy again before the exam.
AN
An
1 year ago
Hmm, I'm a little unsure about this one. I know deflation is the opposite of inflation, but I can't remember the textbook solution off the top of my head. I'll have to think this through carefully.
LU
Lucy
1 year ago
This one seems pretty straightforward. I'm pretty sure the answer is B - increasing the money supply to combat deflation.
MA
Marleen
1 year ago
Okay, let me think this through step-by-step. Deflation means prices are falling, so the central bank would want to increase the money supply to stimulate the economy. I believe the correct answer is B.
LA
Lai
1 year ago
I've got a better idea - how about we just print more money and call it a day? What could go wrong?
NO
Noble
1 year ago
C) Decreasing interest rates.
AS
Ashley
1 year ago
B) Increasing the money supply.
NO
Noe
1 year ago
A) Increasing interest rates.
CE
Celeste
1 year ago
Increasing interest rates during deflation? That's like trying to put out a fire with gasoline!
SA
Sabrina
1 year ago
D) Decreasing the money supply.
JO
Jose
1 year ago
C) Decreasing interest rates.
SU
Sue
1 year ago
B) Increasing the money supply.
EU
Eugene
1 year ago
A) Increasing interest rates.
MO
Monroe
1 year ago
Wait, isn't decreasing the money supply the way to combat inflation? I'm so confused!
CL
Clorinda
1 year ago
B) Increasing the money supply.
IR
Irma
1 year ago
A) Increasing interest rates.
DE
Desmond
2 years ago
But wouldn't increasing interest rates discourage borrowing and spending, leading to deflation?
NA
Nan
2 years ago
I disagree, I believe the answer is B) Increasing the money supply.
BE
Beckie
2 years ago
Increasing the money supply? Sounds like the right move to me. I'll have to remember that one.
LA
Lai
1 year ago
No problem! It's important to understand the measures to prevent deflation.
RA
Raina
1 year ago
Oh, I see. Thanks for the clarification.
DE
Derrick
1 year ago
The correct action is increasing interest rates.
MI
Mi
1 year ago
Increasing the money supply is actually not the acknowledged preventive measure for deflation.
DE
Desmond
2 years ago
I think the answer is A) Increasing interest rates.
LI
Lizbeth
2 years ago
Hmm, I thought decreasing interest rates was the way to go during deflation. I hope I don't get this one wrong on the exam!