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With regard to the economy, which of the following statements is correct? 1. Appreciation - When the value of one currency increases regarding another currency.  2. Deflation - When the overall price level decreases so that the inflation rate becomes negative. 3. Depreciation - The monetary value of an asset decreases over time due to use, wear and tear, or obsolescence.

With regard to the economy, which of the following statements is correct? 1. Appreciation - When the value of one currency increases regarding another currency.  2. Deflation - When the overall price level decreases so that the inflation rate becomes negative. 3. Depreciation - The monetary value of an asset decreases over time due to use, wear and tear, or obsolescence. Correct Answer 1, 2 and 3 all

The correct answer is 1, 2, and 3 all.

Key Points

  • Deflation:​
    • The decrease in the general price of goods and services is termed deflation.
    • The occurrence of deflation takes place when the inflation rate falls below 0%.
    • Deflation is also responsible for increasing the value of currency over a period of time.
    • This process takes place when supply is high and demand is low.
    • Deflation is considered a negative aspect of the economy.
    • It causes the transfer of wealth from borrowers to savers.
    • Deflation causes malinvestment.
  • ​Depreciation:​
    • ​It can be defined as a continuing, permanent, and gradual decrease in the book value of fixed assets.
    • This type of shrinkage is based on the cost of assets utilized in a firm and not on its market value.
  • Following are the 3 principal features of depreciation:
    • Depreciation is a decrease in the book value of fixed assets.
    • Depreciation involves loss of value of assets due to the passage of time and obsolescence.
    • Depreciation is an ongoing process until the end of the life of assets.​
  • Appreciation:
    • When the value of one currency increases regarding another currency.
    • A higher-valued currency makes a country's imports less expensive and its exports more expensive in foreign markets.
    • A lower-valued currency makes a country's imports more expensive and its exports less expensive in foreign markets.

Related Questions

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