Question

Increasing reliance on indirect taxes has ___________ inflation.

• A. Increased
• B. Decreased
• C. No relation to
• D. None of above

Answer 1

Answer: (A)

Increased

Increasing reliance on indirect taxes has increased the real income of the public due to which with the same price of the goods and services in the economy, they are able to buy more. Therefore, the purchasing power of the public has increased which increases the aggregate demand in the economy and leads to increase in inflation owing to excess demand in the economy.