The policies that a country should adopt to close a deflationary gap
- Fiscal policy: the government should reduce taxes on people’s personal income so that they are left with enough disposable income to spend.
- The government should increase her expenditure on social services so as to increase the amount of money in the circulation which leads to increase in aggregate demand.
- There is a need to reduce the interest rates so that people can be encouraged to borrow for consumption which increases aggregate demand
- Government should increase wages as well as encouraging trade unions to demand increases in wages from private institutions to increase aggregate demand
- The government should encourage tourist and immigrants into the country to increase aggregate demand.
- The government should encourage export of excess output to reduce on the aggregate supply and the earnings to increase aggregate demand
- The government should control political instability so that people are encouraged to work and earn incomes to increase aggregate demand
- Adopt expansionary monetary policy: the government through the central bank print or issue more currency to increase the level of aggregate demand.
- Discourage imports which tend to increase aggregate supply and reduce aggregate demand for domestic good and service
- Encourage subsidies, the consumer can be offered subsidies to increase their levels of consumption thereby increasing aggregate demand.
- Reducing direct taxes on incomes of the people. This increases their deposable incomes hence increasing aggregate demand in the economy.
- Improvement in the infrastructure for example transport network to ease movement of surpluses through arbitrage
CATEGORIES Economics
TAGS Dr. Bbosa Science
