Economic Policies to Avoid Deflation

This short topic video looks at examples of macroeconomic policies that might help an economy to avoid deflation or pull out of a deflationary situation.

There are several policies that governments and central banks can use to avoid deflation:

1. Monetary policy: Central banks can use monetary policy tools such as lowering interest rates or increasing the money supply to stimulate economic activity and raise prices.
2. Fiscal policy: Governments can use fiscal policy tools such as increasing government spending or decreasing taxes to stimulate economic activity and raise prices.
3. Quantitative easing: Central banks can purchase assets such as government bonds to increase the money supply and lower interest rates.
4. Structural reform: Governments can implement supply-side structural reforms to improve the efficiency of the economy and increase productivity, which can help to raise prices.

Real-world examples of these policies:

1. The Federal Reserve in the United States used monetary policy tools such as quantitative easing and low interest rates to avoid deflation and stimulate economic growth following the 2008 financial crisis.
2. Japan's central bank, the Bank of Japan, implemented a policy of quantitative easing in the early 2000s to stimulate economic activity and combat deflation. It has also kept interest rates at very low levels for the best part of twenty years or more.
3. The European Central Bank implemented a policy of quantitative easing in 2015 to stimulate economic activity and combat deflation in the Eurozone.
4. In India, the government has implemented structural reform policies such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) to improve the efficiency of the economy and increase productivity.

It's worth noting that these policies are not mutually exclusive, and often are used in combination to fight deflation. Also, the effectiveness of these policies may vary depending on the economic conditions and the specific circumstances of each country.