The 'policies' Government Case Studies - The 'policies' Having chosen a government that you are going to consider for your case study, you now need to choose a policy. We have chosen four different styles of policy - choose one of them and then go to the Virtual Economy model to try them out. Use the results sheet to note down the results of the policy. A deflationary policy - this policy reduces the level of aggregate demand in the economy and will therefore have the effect of reducing growth and inflation.
Unemployment is likely to rise.
A reflationary policy - this policy will boost the economy by increasing the level of aggregate demand . It will increase the level of economic growth, but may cause higher inflation as a result. In other words we want to increase the capacity of the economy to produce. We have cut taxes to try to encourage people to work harder and cut interest rates to encourage more investment. It also increases benefits to help those not working.