Page 1: Question 44 age 2: a) Define Debt Deflation (12 mark) b) At which stage of the financial crisis does debt deflation occur? (12 mark) Complete the following statements: c) Debt deflation (raises /lowers) the value of the borrowing firms' and households' liabilities in real terms (12 mark) d) Debt deflation (does/does not) raise the value of the borrowing firms' and households' assets in real terms (12 mark) e) Debt deflation (raises/lowers) the net worth of borrowers in real terms (12 mark) Consider the scenario below: Suppose a firm in 2020 has: i) Assets of $200 million (in 2020 dollars) in real terms. i) $180 million in long-term liabilities in real terms. f) What is the firm's net worth? (3/2 mark ) Now suppose the price level falls by 5% in 2021. g) Based on the 5% fall in the price level what is the new value of liabilities?(12 mark) h) Do liabilities rise or fall? (1/2 mark ) What is the firm's new net worth? (1 mark)