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Fiscal Policy and Inflation Control

Question

Analyse how fiscal policy could reduce the inflation rate.

Category:

Macroeconomic Factors and Policies

Frequently asked question

Preview Answer

I. 🍃Introduction
- Definition of contractionary/deflationary fiscal policy

II. Reduction in government spending
- Explanation of how it may reduce total demand
- How it can reduce demand-pull inflation

III. Increase in income tax
- Explanation of how it would reduce disposable income
- How it may lower consumer spending
- How it can reduce total demand
- How it can lower demand-pull inflation

IV. Increased spending on education/healthcare
- Explanation of how it may raise productivity
- How it can lower costs
- How it can reduce cost-push inflation

V. 👉Conclusion
- Summary of the effects of contractionary/deflationary fiscal policy on inflation
- Importance of using such policies to maintain economic stability.

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