the inflation rate is highThe inflation rate is high due to too many General needs in the economy. The Government will use fiscal policy in deflation. The Government will try to affect aggregate demand by reducing public spending. The Government will spend less on building roads, bridges and other public spending and hence aggregate demand will fall. On the other hand, the Government can increase the tax rate. Increase the level of taxation will take away more disposable income in people's pockets lead to a lower demand.
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