Chapter 20, Problem 4MCQ

To determine

The fiscal policy which is appropriate to combat inflation

Answer to Problem 4MCQ

From the available options, the correct option is decreasing government spending.

Explanation of Solution

Combat inflation refers to the policy which is used to control inflation through which the supply of money or government spending is reduced by rising the interest rates which in turn reduce the consumption in country and cause the inflation down due to lower price of goods.

Therefore, the correct option is decreasing government spending because if there is decrease in tax, increase in government transfer, and decrease in interest rate then the supply of money would not be reduced. And expansionary policy do not come under combat inflation under the fiscal policy.

Here, the correct option is b (decreasing government spending) and all other options are incorrect.

Economics Concept Introduction

Introduction: Fiscal policy is a policy through which government spending and tax policies are used to make the economic conditions better.