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During a deepening recession, why might consumers postpone their purchases even as producers cut prices?
AThey expect a sharp price rise soon
BBanks force them to delay all spending
CThey expect prices to fall further still
DWage rates are rising too quickly
Answer & Solution
Correct answer: C. They expect prices to fall further still
1. In recession, producers lower prices to clear inventories and meet obligations.
2. The chapter says consumers in turn expect further decreases in prices.
3. So they postpone purchases, deepening the demand shortfall.
4. The correct reason is the expectation of still-lower prices.
5. An expected price rise is ruled out: it would pull purchases forward, not delay them.
6. Rising wage rates are ruled out: wages fall in recession, they do not rise.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.3_
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