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    Question

    Which of the following steps should be taken when there

    is high inflation in an economy? i. Increase direct taxes ii. Reduce policy interest rates iii. Decrease statutory reserve requirements (CRR and SLR) for banks
    A Only i Correct Answer Incorrect Answer
    B Only i & ii Correct Answer Incorrect Answer
    C Only ii & iii Correct Answer Incorrect Answer
    D Only iii Correct Answer Incorrect Answer
    E All the above Correct Answer Incorrect Answer

    Solution

    High inflation means there is more money supply in the market. Reducing interest rates and decreasing reserve requirements will further increase the money supply, so these actions are counterproductive. Increasing direct tax will reduce the money supply and will be helpful in controlling the inflation.

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