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Fiscal Policy and Inflation Control
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Which of the following fiscal policy measures is most effective for controlling inflation?

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Choose the Best Answer

A

Increasing government spending

B

Decreasing taxes

C

Reducing government spending

D

Increasing transfer payments

Understanding the Answer

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Answer

Fiscal policy measures can help control inflation by influencing the economy through government spending and taxation. When inflation is high, one effective measure is to reduce government spending or increase taxes. This approach takes money out of the economy, which can lower demand for goods and services, helping to stabilize prices. For example, if the government cuts funding for public projects, people may have less money to spend, leading to a decrease in overall demand. By reducing demand, this can help slow down inflation and keep prices more stable.

Detailed Explanation

Reducing government spending helps lower the amount of money in the economy. Other options are incorrect because Some might think that spending more will help the economy; People may believe that lowering taxes gives everyone more money to spend.

Key Concepts

Inflation control
Topic

Fiscal Policy and Inflation Control

Difficulty

easy level question

Cognitive Level

understand

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