Question on: JAMB Economics - 2023
Identify one of the following which can NOT be used to close deflationary gap
Increased interest rate
Increased money supply
Increase government expenditure
Reduction in taxes
Increased interest rates are typically used to combat inflation, not to close a deflationary gap. In the context of closing a deflationary gap, which is a situation where aggregate demand is less than aggregate supply, the focus is on stimulating economic activity.
Increasing interest rates tends to have a contractionary effect on the economy, potentially reducing borrowing and spending, which may exacerbate deflationary pressures.
The other options are generally measures used to close a deflationary gap by increasing money supply, government expenditure, and reducing taxes, respectively.
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