📚 Learning Guide
Fiscal Policy and Inflation Control
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How can supply-side economics contribute to inflation control in a fiscal policy framework?

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Learning Path

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Choose the Best Answer

A

By increasing government spending to stimulate demand

B

By reducing taxes to encourage investment and production

C

By implementing price controls on essential goods

D

By increasing interest rates to reduce money supply

Understanding the Answer

Let's break down why this is correct

Answer

Supply-side economics focuses on boosting the economy by increasing the supply of goods and services. When the government invests in things like infrastructure, education, or tax cuts for businesses, it encourages companies to produce more. This increase in production can lead to more jobs and lower prices, which helps control inflation. For example, if a government cuts taxes for a factory, the factory can afford to hire more workers and produce more products, leading to a greater supply and potentially lower prices. By enhancing production capacity, supply-side economics can help keep inflation in check while supporting economic growth.

Detailed Explanation

Reducing taxes helps businesses keep more money. Other options are incorrect because Some might think that more government spending boosts demand; People may believe price controls can keep prices low.

Key Concepts

Inflation control
Supply-side economics
Topic

Fiscal Policy and Inflation Control

Difficulty

medium level question

Cognitive Level

understand

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