Arrange the following in the correct sequential order, if the government of a nation is trying to curtail the situation of inflationary gap:
(i) Decrease in disposable income
(ii) Increase in taxes
(iii) Decrease in Aggregate Demand
(i) Decrease in disposable income
(ii) Increase in taxes
(iii) Decrease in Aggregate Demand
Show Hint
- (i), (ii), (iii)
- (iii), (ii), (i)
- (ii), (iii), (i)
- (ii), (i), (iii)
The Correct Option is D
Solution and Explanation
To curtail the inflationary gap, the government follows these steps:
Increase in taxes: Raising taxes reduces disposable income for consumers.
Decrease in disposable income: As households have less money to spend, their consumption declines.
Decrease in Aggregate Demand: Reduced spending leads to lower aggregate demand, helping to control inflation.
Thus, the correct sequence is (ii) Increase in taxes → (i) Decrease in disposable income → (iii) Decrease in Aggregate Demand.
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