Inflation can be curbed by _______

1. Analyze the question The question asks which measure can curb (reduce) inflation. Inflation is a persistent rise in the general price level, so we need the option that pulls prices down or slows their rise.

2. Explain the concept Inflation is often caused by too much money chasing too few goods (demand-pull inflation). Governments and central banks therefore try to reduce total spending in the economy. They can do this through:

• Contractionary fiscal policy (higher taxes, lower government spending, a surplus budget)
• Contractionary monetary policy (higher interest rates, higher cash reserve ratio, selling government securities)

3. Evaluate each option

• A. Deficit budget: Government spends more than it earns, which injects more money into the economy and raises demand. This fuels inflation, so it is wrong.
• B. Paying higher wages: Workers have more income to spend, and firms' costs rise. This causes demand-pull and cost-push pressure, so it is wrong.
• C. Increased aggregate demand: More total spending pushes prices up, so it is wrong.
• D. Reducing aggregate demand: Less total spending reduces pressure on prices, so the general price level falls or stabilizes. This is correct.

4. Answer The correct option is **D.

5. Exam tip Remember: inflation up = demand up. To curb inflation, think "cut spending, cut money supply": higher taxes, higher interest rates, a surplus budget. Any option that increases spending, wages, or money supply will usually be wrong.