ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Increasing interest rates reduces inflation by limiting the amount of active money circulating in the economy. This also quells unsustainable speculation and capital investment that previous expansionary policies may have triggered.

Detailed explanation-2: -Reducing government spending would tamp down on demand-fueled inflation, while at the same time restoring confidence in the ability of the federal government to pay down the debt and thus control inflation expectations.

Detailed explanation-3: -Monetary policy is usually far better equipped to fight inflation – and manage overall macroeconomic stability – than fiscal policy. The Federal Reserve can react and adjust quickly, largely insulated from political pressures, to fight inflation with higher interest rates and other tools.

Detailed explanation-4: -A healthy fiscal policy is important to control inflation, increase employment and maintain the value of money. It has a very important role in managing the economy. Taxation-regulating which the government increases or decreases the disposable cash in the hands of the public.