ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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lowering taxes and buying bonds
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lowering taxes and raising the reserve requirement
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increasing taxes and lowering the discount rate
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increasing taxes and selling bonds
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Detailed explanation-1: -One of the commonly used measures to control inflation is controlling the money supply in the economy. If the Government decreases the supply of money, then the demand will fall, leading to a fall in prices. Therefore, the Government may decide to withdraw certain paper notes and/or coins from circulation.
Detailed explanation-2: -Pursuing a contractionary monetary policy is the preferred method of controlling inflation today, but so-called soft landings are hard to pull off.
Detailed explanation-3: -In comparing the two, fiscal policy generally has a greater impact on consumers than monetary policy, as it can lead to increased employment and income. By increasing taxes, governments pull money out of the economy and slow business activity.
Detailed explanation-4: -The Government controls its spending when the expenditure from the private side is high. Governments can reduce private spending by increasing taxes. This is one of the fiscal policies of the Governments to control inflation.