Question

If a politician running for office during a period of high inflation promises big tax cuts for households and businesses, you know:
A. The politician has proposed a sensible policy that should ease inflation
B. The politician should focus instead on what she would do with interest rates
C. The politician's plan actually risks making inflation worse
D. The politician should instead propose massive new government spending programs

Answer 1

C.

Cutting taxes in a high‑inflation environment boosts household spending and business investment now, increasing aggregate demand and therefore tending to push inflation higher. Only if the tax cuts were fully offset by spending cuts or explicitly increased supply/productivity would they avoid that effect — otherwise they risk making inflation worse.