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Evaluate the view that the avoidance of price deflation should be the major
macroeconomic objective
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Deflation occurs when the inflation rate falls below 0% (a negative inflation rate)
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If the economy is experiencing high unemployment rates, people will start to
reduce their consumption of goods and services, thereby decreasing demand and
creating falling price levels
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For example, the Bank
of England can control the money supply of the economy
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A decrease in the supply of money will, over time,
curb consumer spending; this eventually leads to a decrease in the gross domestic
product (GDP) and CPI
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Primarily it can be said that whether or not it can be classed as a major
macroeconomic objective is determinant on the type of deflation
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Malevolent deflation is the real problem
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Here
aggregate demand falls, the money supply falls and serious economic consequences
may result
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This can bring downward multiplier effect and tip the
economic cycle towards recession
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The
Government wishing to prevent such negative economic impacts would indeed set
Deflation as a high priority and so a macroeconomic objective
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Benign inflation is said to be good inflation
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This is when markets are flooded with products, and as the surplus drives down prices,
people find their money goes further while they're shielding from the nastier
side-effects like falling wages and redundancies
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In addition although deflation is primarily an expenditure-reducing
policy, it also has an expenditure - reducing policy, it also has an
expenditure-switching element
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Governments are likely to

take a stance on benign inflation whereby they are more reluctant to classify it as a
danger to the economy and therefore a major macroeconomic objective
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Another reason on whether or not the avoidance of price deflation should be a macro
economic objective stems in the feasibility of combating it
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By using
expansionary fiscal and monetary tools, including some unconventional methods,
falling prices can be reversed and aggregate demand restored
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In addition the government may resort to a monetary
policy such as quantitative easing
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Quantitative
easing is when private securities are purchased on the open market, beyond just
treasuries
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Deflationary
periods are ultimately short, despite various circumstances like Japan in the 1990’s
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However the
bottom line is The risk of a deflationary spiral can lead to a cascade of negative
outcomes that hurt everyone so the government should be extremely cautious
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Macro economic objectives are goals of
the government to achieve macro economic stability, they are achieved through macro
economic instruments such as monetary, fiscal and supply side policy
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In
the 1960s, the Balance of Payments was considered very important
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The long-term sustainability of a deficit was a big problem
in the days before global free movements of capital
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It was probably the number one objective
of the socialist government of the late 40s and continued to be at the front of
politicians' minds for the next three decades
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Without growth, peoples' standard of living will not increase, and if
inflation is too high then the value of money falls negating any increase in living
standards
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Deflation although a serious issue perhaps is not as essential
as other macroeconomic objectives as it doesn’t directly contribute to people well

being such as the focus of unemployment and economic growth
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Thereby deflation to be seriously considered
would remove a certain impact the government would have on more important
policies in the greater scheme of things such as improved productivity , as it offers the
possibility of steady, non inflationary, sustainable growth and job creation, possibly
with improvement in the current account of the balance of payments
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To conclude I don’t think that the avoidance of price deflation should be a major
macro economic objective
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Although it should be growth, all government's efforts are devoted to the
control of inflation
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As the government focuses on achieving their 2% inflationary
target they are in sense attempting to avoid deflation and so it is arguably already a
government objective in the same way avoiding economic downfall is
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If
its near 0 level the focus would be preventing it going below that in addition if a
future outlook could provide deflation such as a newly imported high technological
advance then the objective would be to prevent it rather then reach the 2% target

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