Question

Which costs of inflation could the government take action to reduce without reducing inflation?
a. shoeleather cost
b. unintended changes in tax liablities
c. menu costs
d. none of the above is correct

Answer 1

Answer:

The correct answer will be Option b (unintended changes in tax liabilities).

Explanation:

• Government should minimize the inevitable increases in tax liabilities, besides obvious reasons adjusted for inflation, earnings will increase, but mostly individuals will indeed be healthier and more productive income level and might have to pay more in taxes.  
• The objective is to reduce this, thereby directly increasing the chances of inflation or unemployment.  

Some other alternatives offered are not in relation to the condition in question. So Choice b has been the appropriate one.