Question

Which of the following measures by the government will lead to a reduction in inflation?

1. Reducing government tax collection

2. Reducing government spending

3. Banning the export of essential items

Which of the above statements is/are correct

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2 and 3 only

Answer 1

Correct Answer - Option 2 : 2 and 3 only

The correct answer is 2 and 3.

• Inflation can be controlled by increasing the supplies of goods and services and reducing money incomes in order to control aggregate demand.
• Fiscal measures to control inflation: 
  • The government should reduce unnecessary expenditure on non-development activities in order to curb inflation. Hence, Statement 2 is correct.
  • To cut personal consumption expenditure, the rates of personal, corporate, and commodity taxes should be raised. Hence, Statement 1 is NOT correct.
  • Some protectionist measures (such as banning the export of essential items such as pulses, cereals, and oils to support domestic consumption, encourage imports by lowering duties on import items, etc. Hence, Statement 3 is correct.