Question

Which one of the following measures in the Keynesian framework is adopted to tame inflation in an economy ?

• A. Reduction in government spending
• B. Reduction in the bank rate
• C. Reduction in the repo rate
• D. Increase in merchandise exports

Answer 1

The Correct Option is A

In the Keynesian framework, managing inflation involves controlling aggregate demand. One effective measure for reducing inflationary pressure is to decrease government spending. By doing so, the overall demand for goods and services in the economy decreases, leading to reduced inflationary pressure.

• Reduction in government spending: This is a contractionary fiscal policy tool. By lowering government expenditures, the total demand in the economy decreases, which helps in reducing inflation. Hence, this option effectively aligns with the Keynesian measures to tame inflation.
• Other options such as Reduction in the bank rate or Reduction in the repo rate are monetary policy tools aimed at making borrowing cheaper, thus generally increasing demand rather than reducing it.
• Increase in merchandise exports would lead to higher demand for an economy's goods, thus potentially worsening inflation rather than reducing it.

Therefore, among the available options, Reduction in government spending is the correct and strategic measure in the Keynesian framework to control inflation.