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Economic Incentives in a Deflationary Environment
Imagine an economy where the general level of prices for goods and services is expected to consistently fall over the next several years. Explain in detail how this expectation of falling prices would likely alter the financial decisions of (a) individuals or businesses considering taking out new loans, and (b) individuals considering saving their money in a bank account that pays a low but positive interest rate. Justify your reasoning for both groups.
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