Compulsory saving curbs inflation by reducing spending

Steps:

• Rising prices indicate inflation, often driven by high consumer demand.
• To fight inflation, government must lower aggregate demand, especially consumer expenditure.
• Policies that reduce disposable income directly cut spending power.
• Evaluate options for impact on consumer spending.

Why A is correct:

• Compulsory saving forces income earners to save more, reducing disposable income available for consumption, per the consumption function C = C0 + c(Y - T - S), where S increases to lower spending.

Why the others are wrong:

• B: Infrastructure investment boosts economic activity and jobs, increasing consumer income and expenditure.
• C: Issuing more currency expands money supply, fueling demand-pull inflation and higher spending.
• D: Lower indirect taxes make goods cheaper, encouraging more consumer purchases.

Final answer: A