Fiscal policy refers to the policy of the government with relation to taxation public expenditure and management of public debt. According to Arthur Smithies, Fiscal policy is "A policy under which the government uses its expenditure and revenue program

To address the issue of inflation while maintaining the economic boom in Gandoland, Dr. Kangkpeyeng needs to implement measures that carefully balance reducing inflationary pressures against sustaining economic growth. Below are recommended fiscal policy measures and compensatory fiscal policies. ### a) Fiscal Policy Measures to Reduce Inflation 1. **Reduce Government Expenditure:** - Dr. Kangkpeyeng can cut back on non-essential government spending. By reducing expenditure, the aggregate demand in the economy can be tempered, which may help to alleviate inflationary pressures without stifling essential services or investment. 2. **Increase Taxes:** - An increase in taxes, particularly on higher income brackets or luxury goods, can reduce disposable income and consumption. This can help to dampen demand in the economy, contributing to reduced inflation. 3. **Control Public Debt:** - By maintaining a responsible stance on public debt, the government can reinforce confidence in the economy. Higher confidence can reduce inflation expectations, which could help stabilize prices. 4. **Targeted Incentives:** - Instead of broad tax cuts or financial incentives, Dr. Kangkpeyeng might consider targeted fiscal measures that encourage investment in productive sectors or essential goods, thereby boosting supply and combating inflation without fueling excess demand. ### b) Compensatory Fiscal Policies 1. **Counter-Cyclical Fiscal Policy:** - This approach involves increasing spending during a recession and cutting back during a boom to smooth out economic fluctuations. It aims to stabilize the economy over time. 2. **Expansionary Fiscal Policy:** - Normally used during downturns, this involves increased government spending and/or tax cuts to stimulate the economy. In the context of inflation, it may not be appropriate unless targeted specifically. 3. **Contractionary Fiscal Policy:** - This policy aims at reducing demand in an overheated economy by cutting government spending and/or increasing taxes to control inflation. ### Recommendation to Dr. Kangkpeyeng Given the current situation in Gandoland, where inflation is rising amid an economic boom, I recommend Dr. Kangkpeyeng implement a **Contractionary Fiscal Policy**. This would involve: - **Careful Decline in Non-Essential Public Expenditure:** Reducing spending on non-critical infrastructure and services to mitigate inflationary pressures. - **Increased Taxes on Non-Essential Goods and High Earners:** This would reduce disposable income, thus curbing spending, particularly on luxury items, helping to stabilize prices in the economy. By taking these steps, Dr. Kangkpeyeng can aim to effectively balance the need to combat inflation while still fostering the positive aspects of the current economic boom in Gandoland. These fiscal measures should be carefully monitored and adjusted as necessary to ensure that they achieve the desired effect without pushing the economy back into recession.