ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raise them
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Lower them
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Keep them the same
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Does not have the ability to change them
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Detailed explanation-1: -In the short term, governments may focus on macroeconomic stabilization-for example, expanding spending or cutting taxes to stimulate an ailing economy, or slashing spending or raising taxes to combat rising inflation or to help reduce external vulnerabilities.
Detailed explanation-2: -Governments can reduce private spending by increasing taxes. This is one of the fiscal policies of the Governments to control inflation. Q. How does the Reserve Bank of India control inflation?
Detailed explanation-3: -To control inflation, the government can increase tax rates as it will decrease the people’s purchasing power.
Detailed explanation-4: -A government may choose to use fiscal policy to help reduce an inflationary gap, often through decreasing the number of funds circulating within the economy. This can be accomplished through reductions in government spending, tax increases, bond and securities issues, and transfer payment reductions.
Detailed explanation-5: -Answer and Explanation: The correct answer is Option A. The sale of government bonds by the Federal Reserve to banks would cause a decrease in the money supply because the Fed will exchange the bonds for money. This will reduce the rate of inflation.