An article by a columnist on bloomberg.com discussed the writing of Silvio Gesell, an economist who lived in Austria during the late 1800s and early 1900s. Gesell had experienced a period of deflation during a recession in Austria in the 1880s. The deflation had “made debts more burdensome, worsening the downturn.” Gesell’s solution to the deflation was for the Austrian government to enact new rules for its currency. Currency would lose 5 percent of its face value each year, unless the holder of the currency pasted a stamp on the bill. The stamp would cost 5 percent of the face value of the bill. Two years after the program began, a bill would need to have two stamps to be worth its face value, and so on in future years. The columnist states that “Gesell sought to increase the movement of money.” 

a. What is price deflation? 

b. Why does price deflation increase the burden of a debt? Why might increasing the burden of debts make an economic recession worse? 

c. Use the quantity equation to explain the logic of Gesell’s proposal for stamped money. How might the proposal have put an end to a deflation?