The pain of asset price deflation: is equal to the pleasure of asset price infla

Question

The pain of asset price deflation:

is equal to the pleasure of asset price inflation because asset price inflation leads to increases in consumption and asset price deflation other leads to an equal decrease in consumption. Neither has side effects.

is greater than the pleasure of asset price inflation because during an asset price inflation, people often borrow against the perceived increase in wealth and during an asset price deflation they cannot "unspend" that consumption to pay off the debt that can no longer afford.

is less than the pleasure of asset price inflation because during an asset price deflation people realize that the pleasure received from increased consumption spending was an illusion and during the asset price deflation reduced consumption they realize its true, lower, value.

is the same than the pleasure of asset price inflation because during both the inflation and deflation the real value of their wealth, and therefore the collateral they used to increase consumption, did not change.

Explanation / Answer

The correct answer is option (A). The pain of asset price deflation is the same than the pleasure of asset price inflation because during both the inflation and deflation the real value of their wealth, and therefore the collateral they used to increase consumption, did not change.

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