Question

Q. Which of the following can be the appropriate response to curtail the rise in demand-pull Inflation?

Select the correct answer using the code given below:

• A. 1, 2, 3 and 4 only
• B. 2, 4 and 5 only
• C. 1, 2 and 5 only
• D. 1, 2, 3, 4 and 5
  

Answer 1

The correct option is B 2, 4 and 5 only

Explanation:

• High inflation hurts the low-income groups, discourages exports and is considered a tax on the poor. A range of fiscal and monetary policy tools are used to contain inflation. Some of them are
  • Credit Control: RBI uses a range of monetary policy tools to increase the cost of credit and hence reduce the overall money supply in the economy. Hence, a decrease in access to credit reduces inflation.
  • In the case of cost-push inflation, the increase in production helps arrest the demand-supply mismatch and helps to bring down the price of goods.
  • An increase in taxes will reduce disposable incomes and hence reduce the price of goods.
  • A tight fiscal policy involves cutting government expenditure and reduces the overall demand in the market.
  • An increase in savings will postpone the current spending and hence reduce the pressure on the prices.