Discuss briefly, how the government can control the situation of deflation using the following :

(a)

Taxation Policy

(b)

Government Expenditure Policy

Taxation Policy: To control deflation, the government may reduce the tax rates. This step may increase the disposable income (purchasing power) in the hands of the general public. Consequently, it may lead to a rise in Aggregate Demand, thereby controlling the situation of deflation.

Government Expenditure Policy: To control deflation, the government may raise public expenditure. This step may result in an increase in the level of Aggregate Demand in the economy by raising the income of people.