Multiple choice

Which of the following fiscal policies is not adopted by the government during deflation?

  1. Increase in government expenditure

  2. Increase in transfer payments

  3. Increase in taxes

  4. Repayment of public debt
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is not the policy adopted at the time of deflation. At the time of deflation, there is already a decline in demand, and less purchasing power. If the government increases taxes, it will leave less money and thus less purchasing power in the hands of people. Hence, the demand will decrease further. So, this policy is not adopted at the time of deflation.

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