Wiping out Deflationary gap


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Wiping out Deflationary gap

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As regards wiping out the deflationary gap, the government should increase its expenditures or help to raise the expenditure of the general public. The government can raise its own expenditure by investing in public works and financing them by borrowing from banks. The expenditure of the community C + I can be raised by reducing taxes and other incentives. If the C’ + j’ + G’ is raised to the original level then the deflationary gap will disappear.

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