Question

You read in the news about a country that is experiencing strong deflation...

a.

and you think, this is not realistic, since in the real world countries experience inflation, not defaltion.

b.

and you want to go there and borrow money so you can pay it back later in devalued currency.

c.

and you realize they are going to have a problem with deferred consumption.

d.

and you think, it must be terrible to live somewhere, where everything's getting more expensive all the time!

Patents turn new ideas into

	a.	private goods, and decrease the incentive to engage in research.
	b.	private goods, and increase the incentive to engage in research.
	c.	public goods, and increase the incentive to engage in research.
	d.	public goods, and decrease the incentive to engage in research.

Answer 1

1 - Option C

And you realise there will be problem with deferred consumption

Consumtion in the phase of deflation falls to a large extent and is postponded. Borrowing is not a good idea in deflation , it should be done in inflation. Goods will not be more expensive as price level are low and not high. Countries not only experience inflation , but deflation too.

Hence Option C will only be correct

2 - Option B

Private goods and increase the incentive for research.

Patents give the power to protect the idea , thus it cannot be accessed by other party. Hence it will not be a public good. It encourages more research because of greater protection. Hence Option B will be correct.