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UPSC Economics Business and Foreign Trade / व्यापार और विदेश व्यापार Question Bank Money Supply and Indian Financial System

  • question_answer
          Which of the following measures should be taken when an economy is going through in inflationary pressures?
    1. The direct taxes should be increased.
    2. The interest rate should be reduced.
    3. The public spending should be increased.
    Select the correct answer using the codes given below:

    A) Only 1                          

    B) Only 2

    C) 2 and 3                        

    D) 1 and 2

    Correct Answer: A

    Solution :

    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, the direct taxes should be increased when an economy is going through inflationary pressures.


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