Deflation Versus Inflation

This question tests your understanding of how price level changes affect businesses, consumers, borrowers, and overall economic activity. A strong interview answer should show that you can compare the mechanics of inflation and deflation, think through second order effects such as margins, wages, employment, debt burdens, and investment behavior, and explain why falling prices can create a difficult feedback loop for growth. Interviewers ask this kind of question to see whether you can reason clearly about macroeconomic conditions and connect them to the real economy and capital markets.