A financial analyst has noticed a serious increase in inflation. What course of action might the financial analyst advise the government to take to reduce inflation?
A) The government can lower taxes.
B) The government can raise taxes.
C) Encourage the government to increase spending.
D) Encourage consumers to increase spending.
E) Encourage the government to increase spending and lower taxes.

Question

Quizplus · Accepted Answer

One of the ways to reduce inflation is to decrease the demand for goods and services. Raising taxes would decrease disposable income, leading to a decrease in demand for goods and services, which can ultimately reduce inflation. Lowering taxes or increasing government spending would have the opposite effect, leading to greater demand and potentially worsening inflation. Encouraging consumers to increase spending would also worsen inflation. Thus, option B is the best choice for reducing inflation.

A Financial Analyst Has Noticed a Serious Increase in Inflation