Discuss the macroeconomic impacts of deflation on an economy.

This answer would usually be marked out of 25, therefore should include:

Detailed introduction which explores examples of deflation in modern world economies and sets a brief insight as to the content which the body of the essay will include.

Detailed analysis of both the potential positive impacts eg. benign deflation signalling positive growth of the productive capacity of the economy, potentially through improved investment etc. and negative impacts ie. the effects of malign deflation and the prospect of a deflationary spiral. Answers should be linked to world examples or the case study provided in the question and should always link to the macroeconomic objectives. 

Evaluative points must be made throughout. This would entail the individual debating as to whether the positive impacts could potentially have detrimental effects on other aspects of the economy or include possible constraints as to how beneficial/ harmful the effect may be.

Finally, a strong conclusion, providing key evaluative points, forming the argument that deflation, as a whole, has significantly worse effects on an economy.  

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Answered by Billy B. Economics tutor

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