An economy is experiencing persistent deflation, with the annual inflation rate falling to -2.5%, causing a consumer spending freeze as households delay purchases in anticipation of further price falls. Which combination of policy changes is most likely to help the economy escape this deflationary trap and return inflation to its positive target?
| Option | Interest rates | Government expenditure | Personal income tax rates |
|---|---|---|---|
| A | Increase | Decrease | Increase |
| B | Decrease | Decrease | Decrease |
| C | Increase | Increase | Increase |
| D | Decrease | Increase | Decrease |
Option A
Option B
Option C
Option D
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.