In the past few years, CPI inflation has often differed by more than 1% from its 2% target. In the winter of 2015 the uk experienced a brief period of deflation but more recently inflation has been over 3%

Evaluate the view that inflation is always preferable to deflation

(25 Marks)

Could you please answer the question using the mark scheme below by using those points. i want to know how to answer this question by implementing these points . i need a full 25 mark answer grade at least B+. thanks.

Developing a response to the question: inflation damaging competitiveness with a potential impact on the balance of payments on current account anti-inflation policies which are potentially harmful to the economy the impact on business and household confidence the impact on real income and hence real spending power . .. . the ultimate damage to economic growth and jobs deflation as being far less common than inflation in many economies the impact on real incomes and real purchasing power . . the dangers of consumer postponement of purchases hoping that prices will fall further 20 Economics ECON4 - AQA GCE Mark Scheme 2011 June series the impact on profits . the impact of lower profits and lower business confidence on investment the potential benefits of reflationary policies the benefits of falling prices to competitiveness the possible harm done to growth and jobs . . . the impact on creditors/debtors whether one is more/less anticipated than the other Evaluation: the extent of the problem, i.e. how significant the rate of inflation or deflation is . the length of time in which prices rise or fall the potential benefits of mild inflation which might not be said of mild deflation the relative ease/difficulty of executing, and making effective, policies to deal with either of the problems the simultaneous experience of other countries whichever problem prevails, the danger of the authorities overshooting targets, eg. quantitative easing and low interest rates bringing too much reflation and hence more inflation the difficulty of making a judgement without more detailed information on an actual occurrence and the events surrounding it . both inflation and deflation have redistributive effects and it is impossible to predict which might be the more beneficial a realistic conclusion is that, whatever the relative impact, neither may be desirable and the authorities should be aiming for a period of sustained price stability