Banking Finance And Macroeconomic Policies

Equilibrium in the economy is achieved when:

where

Substituting the given values:

From the equilibrium condition:

Thus, Investment Expenditure is .

To curtail the inflationary gap, the government follows these steps:
Increase in taxes: Raising taxes reduces disposable income for consumers.
Decrease in disposable income: As households have less money to spend, their consumption declines.
Decrease in Aggregate Demand: Reduced spending leads to lower aggregate demand, helping to control inflation.

Thus, the correct sequence is (ii) Increase in taxes → (i) Decrease in disposable income → (iii) Decrease in Aggregate Demand.