If inflation is the most significant issue in an economy, an appropriate fiscal policy response would be to decrease taxes

Question

Quizplus · Accepted Answer

When inflation is the most significant issue in an economy, decreasing taxes can actually exacerbate inflation by increasing demand for goods and services without increasing supply. The appropriate fiscal policy response would be to increase taxes or reduce government spending in order to reduce aggregate demand and curb inflation.

If Inflation Is the Most Significant Issue in an Economy