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Economics explained


Policies to correct inflation

Deflationary policies - Diagram

Deflationary policies - Diagram

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Deflationary fiscal policy and/or deflationary monetary policy help to lower the price level by shifting the aggregate demand curve to the left.

These policies will reduce aggregate demand, there will be a shift in the aggregate demand curve from AD to AD1.

There will be a fall in the general price level from P to P1. The level of inflation is reduced.

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