Fiscal policy that can control inflation will include the use of?

A. balanced budgeting
B. tax holidays
C. budget deficit
D. budget surplus

Correct Answer: Option C

C. budget deficit

Explanation

Fiscal policy involves the government changing tax and spending levels in order to influence the level of Aggregate Demand. To reduce inflationary pressures the government can increase tax and reduce government spending.

The two main components of fiscal policy are government revenue and government expenditure. In fiscal policy, the government controls inflation either by reducing private spending or by decreasing government expenditure or by using both. It reduces private spending by increasing taxes on private businesses.