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Economics (AS & A Level) · Oct / Nov 2021 · Paper 12 · Question 30

9708Fiscal policy

Country X is an open economy with a floating exchange rate. It changes to a fixed exchange rate. Which combination of policy changes would be most effective in reducing inflation?

  1. Ahigher direct taxes; above purchasing power parity
  2. Bhigher direct taxes; below purchasing power parity
  3. Chigher indirect taxes; above purchasing power parity
  4. Dhigher indirect taxes; below purchasing power parity

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Correct answer: A. higher direct taxes; above purchasing power parity

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