Question

In: Economics

Which of the following policy would reduce the inflation rate? please explain B and D in...

Which of the following policy would reduce the inflation rate? please explain B and D in detail, many thanks!

(a) reduction of the personal income tax rate

(b) reduction of transfer payment

(c) increase of government expense

(d) reduction of money supply

Solutions

Expert Solution

Part a.

A reduction in Personal Income tax will mean that household will now have more income at their disposal thereby increasing demand for goods and services. A spur in demand increase the prices further. Therefore a reduction in Personal Income tax will not help in reducing inflation rate.

Part b.

A reduction in transfer payments from government will mean a decrease in cash transfers done to households. A decrease in transfers reduces the households' disposable income which reduces the demand for goods and services which leads to fall in prices. Therefore a reduction in transfer payments will help in reducing inflation.

Part c.

An increase in Government spending will first increase the demand for goods and services and secondly it will lead to generation of income (Government spending multiplier). Both of which will result in increased demand for goods and services and thereby increasing prices. Therefore an increase in Government spending will not help in reducing inflation.

Part d.

A reduction in money supply in supply will create a shortage of currency in the economy, at a given supply of goods and services already produced. This reduction in money supply will lead to demand going down since people will have less cash as a result prices will go down. Therefore a reduction in money supply will lead to a reduction in inflation.


Related Solutions

If the primary goal is to reduce inflation, which of the following fiscal policy actions would...
If the primary goal is to reduce inflation, which of the following fiscal policy actions would be appropriate during a period of a rapidly increasing consumer price index? I. Reduce government expenditures for defense and nuclear energy research. II. Increase transfer payments to those most severely affected by the rising price index. III. Increase personal income tax rates.
Which of the following would be most likely to reduce frictional unemployment? EXPLAIN WHY PLEASE a...
Which of the following would be most likely to reduce frictional unemployment? EXPLAIN WHY PLEASE a The government increases unemployment insurance benefits. b   A new law bans labor unions c   the government eliminates the minimum wage. d More workers post their resumes at LinkedIn.com, and more employers use LinkedIn.com to find suitable workers to hire. E. Sectoral shifts become more frequent.
Suppose the Federal Reserve announced that it would pursue contractionary monetary policy to reduce the inflation...
Suppose the Federal Reserve announced that it would pursue contractionary monetary policy to reduce the inflation rate. True or False: If wage contracts have short duration, it would make the recession induced by contractionary monetary policy more severe. True False A recession induced by contractionary monetary policy will be more severe if there is confidence in the Fed's determination to reduce inflation. True or False: If expectations of inflation adjust quickly to actual inflation, it would make the recession induced...
Explain two policy recommendations that can reduce the natural rate of unemployment.
Explain two policy recommendations that can reduce the natural rate of unemployment.
d) Explain the effect of an expansionary monetary policy on real physical output, employment and inflation...
d) Explain the effect of an expansionary monetary policy on real physical output, employment and inflation given that economy in Zambia is operating at potential output level. [6 Marks] e) Use the aggregate demand and the 45-degree line to represent equilibrium in the goods market. Make sure to include intercept, and slope in your graph. Further assume that interest rates decrease, show the effect of decreased interest rates on equilibrium income. Explain the stage economy goes through in moving from...
Explain how Brazil was able to reduce the rate of inflation from from more than 2500%to...
Explain how Brazil was able to reduce the rate of inflation from from more than 2500%to less than 10% between 1994 and 1997.
A) Suppose Inflation is higher than the Fed's target rate. To reduce Inflation, the Fed should...
A) Suppose Inflation is higher than the Fed's target rate. To reduce Inflation, the Fed should .................... government bonds. This will in turn ................... money supply and .................. interest rates. In essence, what kind of Monitory Policy is the Fed Running here ? B) If the Fed changes interest rate from 0.25% to 0.75% while the European central bank keeps the interest rate unchanged at 0.25% what would be the impact on : U.S. Capital Inflows (increases or Decreases)? U.S....
Question1 :Which of the following about inflation is NOT true? a)With an unexpectedly high inflation rate,...
Question1 :Which of the following about inflation is NOT true? a)With an unexpectedly high inflation rate, retirees get lower pensions. b)A low inflation rate band helps reduce volatility. c)Governments gain from higher inflation rate. d)With an unexpectedly low inflation rate, lenders lose and borrowers win. Question2: Which of the disadvantages of fiscal policy is NOT true? a)Fiscal policy could take significant processing time to get approved. b)Fiscal policy sometimes over-corrects the economy. c)Fiscal policy could create a government budget deficit....
please answer a,b,c,d..some quetions have more than 1 answer 103)Which of the following items would not...
please answer a,b,c,d..some quetions have more than 1 answer 103)Which of the following items would not appear in an income statement? A)Cash. B)Service revenue. C)Salaries expense. D)Advertising expense. 108)ABC opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What was the balance in ABC's Prepaid Insurance account as of December 31, 2018? A)$48,000. B)$30,000....
money theory and policy Discuss the factors that explain why the optimal inflation rate should be...
money theory and policy Discuss the factors that explain why the optimal inflation rate should be positive.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT