Concept:During inflation, fiscal policy aims to reduce aggregate demand by decreasing disposable income and government spending.
Explanation:Inflation occurs when there is excess money supply and high aggregate demand.
The government should increase direct taxes, such as income tax and company tax.
Higher direct taxes reduce the disposable income of individuals and firms.
This lowers private consumption and reduces aggregate demand in the economy.
Increasing indirect taxes raises the cost of production and may worsen inflation.
Reducing personal income tax or increasing government expenditure would further increase demand and inflation.
Thus, the correct fiscal measure during inflation is to raise direct taxes.
Answer:B. increase direct taxes