The Central Bank's primary mandate is to maintain price stability, typically defined as keeping inflation at a stable 2% target over the medium term. When macroeconomic conditions deteriorate and aggregate demand contracts significantly, demand-deficient deflation is often the result. However, supply-side improvements, such as rapid technological progress or increases in productivity, can also lead to falling prices, suggesting that deflation can have multiple origins and very different economic consequences.
Extract B states: 'When macroeconomic conditions deteriorate and aggregate demand contracts significantly, demand-deficient deflation is often the result.'
Assess the view that deflation is always caused by a deficiency in aggregate demand.
