Which of the following measures should be taken when an economy is going through inflationary pressures?
The direct taxes should be increased.
The interest rate should be reduced.
The public spending should be increased.
Select the correct answer using the codes given below
Options:
A . Only 2
B . 2 and 3
C . Only 1
D . 1 and 2
Answer: Option C Answer: (c) Cost-push inflation occurs when businesses respond to rising costs, by increasing their prices to protect profit margins. There are many reasons why costs might rise: Component costs, Rising labour costs and higher indirect taxes imposed by the government. So, direct taxes should be increased when an economy is going through inflationary pressures.
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