ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Lower the base rate
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Raise the base rate
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Either A or B
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None of the above
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Detailed explanation-1: -Contractionary monetary policy is now a more popular method of controlling inflation. The goal of a contractionary policy is to reduce the money supply within an economy by increasing interest rates.5 This helps slow economic growth by making credit more expensive, which reduces consumer and business spending.
Detailed explanation-2: -Unemployment increases during business cycle recessions and decreases during business cycle expansions (recoveries). Inflation decreases during recessions and increases during expansions (recoveries).
Detailed explanation-3: -There are four basic strategies that central banks have used to control and reduce inflation: exchange-rate pegging; monetary targeting; inflation targeting; and.