Question

The cost of disinflation is the:

Group of answer choices

leftward shift in aggregate supply.

decrease in prices.

loss of real GDP in the process.

loss of international markets when prices change.

Answer 1

Answer: loss of real GDP

Disinflation is the fall in inflation rate – suppose the rate of inflation is 10%; if the rate falls to 3.5%, then there is disinflation.

In such case the real GDP falls below the potential level, which is the loss to the economy since the unemployment rate increases.

Other options are not correct:

1^st option: since the price-level decreases, supply should not shift to the left but should shift to the right in the long-run.

2^nd option: the price decrease is not a cost but a benefit.

4^th option: this option is irrelevant here.