The following measures used to check deflation EXCEPT

Analyze the question: We need the option that is NOT a measure used to check (control) deflation.

Concept: Deflation is a persistent fall in the general price level, usually caused by weak demand, a reduced money supply, and falling output. To check it, the government and the central bank try to increase spending and money supply, using expansionary policies.

Measures used to check deflation:

• Deficit financing (A): the government spends more than it earns, which injects money into the economy. This is used.
• Improving the distribution system (B): this gets goods to consumers efficiently and reduces gluts, which supports price stability. This is acceptable.
• Increasing wages and salaries (C): this raises purchasing power and demand, which pushes prices up. This is used.
• Reducing taxation (E): this leaves people with more disposable income, which increases demand. This is used.
• Raising the bank rate (D): a higher bank rate makes borrowing more expensive, so credit and spending fall. This is a contractionary measure used to check inflation, not deflation. To fight deflation, the central bank would lower the bank rate.

Answer: D. Raising the bank rate is the exception, because it would worsen deflation rather than cure it.

Tip: Remember "Inflation: tighten, Deflation: loosen."

• Against inflation: raise the bank rate, raise taxes, cut government spending.
• Against deflation: lower the bank rate, cut taxes, increase spending and money supply.

Whenever you see "raising the bank rate," think "cooling the economy down."