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.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.