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Using an appropriate diagram explain how a government may attempt to close a deflationary gap.
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Using an appropriate diagram explain how a government may attempt to close a deflationary gap. Inflation is a sustained general increase in the level of prices. The level of inflation may be 3% per annum, which means that $100 will buy 3% less goods next year than it does now. The opposite of inflation is deflation. This technically means that the price level, or the average prices of goods and services in an economy, is decreasing. In effect, this means that money is worth more over time. However, the word deflation has gained another meaning, and is more often used to describe a situation where an economy's output growth is slowing. A situation representing deflation can be drawn using the Keynesian 45? Line, which shows combinations of points where the two axes are equal. AD represents aggregate demand, which is the sum total of all demands in the economy at any given...
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