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Deflation causes financial disruption when bank balance sheets swell as more borrowing occurs. problems of asymmetric information decrease as borrowers net worth rises. borrowers are

Deflation causes financial disruption when

  • bank balance sheets swell as more borrowing occurs.

  • problems of asymmetric information decrease as borrowers net worth rises.

  • borrowers are attracted to new financing with better terms for business and residential loans.

  • borrowers have invested in real assets whose value declines while loan payments stay the same.

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