Homework Answers
The demand pull inflation occurs due to excessive increase in the aggregate demand, so the government would want to decrease the aggregate demand. The government has got two tools for controlling the aggregate demand and that are ,
- Taxation.
- Government spending.
To decrease the aggregate demand the taxes have to be increased so the disposable income will fall and the people reduce the consumption expenditure and this will reduce the aggregate demand. A decrease in the government spending is advised for ending the demand pull inflation. A decrease in spening decreases the employment opportunities so the income fall so the aggregate demand.
Ans: e). Reducing government spending, Increasing taxes or both.
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