During inflation; the appropriate fiscal measure to adopt is to?

A. increase indirect taxes
B. increase direct taxes
C. reduce personal income tax
D. increase government expenditure

Correct Answer:

Option B = increase direct taxes

Explanation

In fiscal policy, the government controls inflation either by reducing private spending or by decreasing government expenditure, or using both.

It reduces private spending by increasing taxes on private businesses. When private spending is more, the government reduces its expenditure to control inflation. The tax system should provide larger incentives to those who save, invest, and produce more.