Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?
A)Increase transfer payments.
B)Increase government purchases.
C)Decrease government purchases.
D)Decrease transfer payments.
E)Increase personal income taxes.

Question

Quizplus · Accepted Answer

Decreasing government purchases would be the best option to counteract inflation with the smallest impact on the federal budget. This is because reducing government purchases would result in a decrease in demand for goods and services, which would lead to a decrease in prices and therefore help to counteract inflation. Additionally, this policy would have a smaller impact on the federal budget compared to other options like increasing transfer payments or increasing government purchases, which would require additional funds to be spent. Decreasing transfer payments or increasing personal income taxes could also help to counteract inflation, but they would have a greater impact on specific groups of individuals and could potentially harm the economy overall.

Assume That the Federal Government Wishes to Counteract Inflation with a Policy