Question

The measures to correct excess demand through fiscal policy include:

• A. Increase in taxes
• B. Reduction in public expenditure
• C. Increase in public borrowing
• D. All of the above

Answer 1

The correct option is D All of the above

Fiscal policy is the expenditure and revenue (taxation) policy of the government to control credit in the economy. By increasing taxes the government reduces the purchasing power of the people, by reduction in public expenditure the government is reducing the aggregate demand and by increasing public borrowing the government withdraws money from the market thereby reducing the purchasing power.