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 banksSolution
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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