📚 Learning Guide
Fiscal Policy and Inflation Control
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How does a government decrease inflation through fiscal policy without increasing unemployment?

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Learning Path

Question & Answer
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Choose the Best Answer

A

By increasing taxes to reduce disposable income

B

By increasing spending to stimulate demand

C

By cutting government spending to decrease aggregate demand

D

By lowering interest rates to encourage borrowing

Understanding the Answer

Let's break down why this is correct

Answer

A government can decrease inflation through fiscal policy by adjusting its spending and tax policies. To reduce inflation, it might decide to cut back on its own spending or increase taxes for consumers and businesses. However, to avoid increasing unemployment, the government can focus on investing in areas that create jobs, such as infrastructure projects. For example, if the government builds new roads or schools, it can stimulate the economy and create jobs while still controlling inflation by managing overall spending. By carefully balancing these actions, the government can help stabilize prices without causing a rise in unemployment.

Detailed Explanation

Cutting government spending lowers the total money in the economy. Other options are incorrect because Some think raising taxes helps control inflation; Increasing spending seems like a good idea to boost the economy.

Key Concepts

Fiscal Policy
Inflation Control
Unemployment
Topic

Fiscal Policy and Inflation Control

Difficulty

medium level question

Cognitive Level

understand

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