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6.1.7.3. Control of deflation
Fiscal and monetary measures are used to control deflation. The government needs to spend more than its tax receipts. It may even cut down taxes to facilitate availability of high disposable income at the hands of households to cause increased household spending. Often the governments tend to resort to deficit financing to control deflation. Adoption of monetary policy to control deflation may not be effective. When deflation prevails, there is invasive pessimism among investors. In such a situation it would be difficult to induce the investors to avail credit for enhancing production. Thus monetary policy alone may not help much but when it is employed along with fiscal measures deflation could be effectively controlled. |