Question

Q14) Fiscal drag is a condition normally associated with

• A. a) Deflation
• B. b) Disinflation
• C. c) Reflation
• D. d) Inflation

Answer 1

The correct option is D d) Inflation

Ans: D

Explanation: It is a situation where inflation pushes income to a higher tax brackets. It leads to higher income tax collection by the government but no increase in real purchasing power. Government gains due to higher tax collections and the economy suffers as growth is dragged down due to less demand.