b) Fiscal Measures

These measures are implemented by way of Fiscal Policy, popularly called annual Budget. The government can take two routes to bring down the prices under this method:

(a) It can cut down its own spending on various schemes, projects etc.

(b) It can increase the taxes (either direct or indirect).

As far as the first option is concerned most of the governments across the world do not employ this method for two simple reasons, first they cannot suddenly reduce the money, which is being spent on several critical projects pertaining to infrastructure etc. as it would not only bring down the image of the country but also create a negative market sentiment. Secondly, if they cut down spending on several important welfare schemes etc. then it may politically harm them in the next elections. So cutting down government expenditure is not considered feasible.

The second method is raising the taxes to discourage spending. The government may increase the private direct taxes to reduce the incomes and thereby decreasing the consumption tendencies among the public. It may also increase the indirect taxes on commodities, raising their prices and thereby discouraging spending on them by the public.

But the limitation of this move is that it takes some time to give effect, because the fiscal policy is implemented on annual basis.