ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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reducing the growth rate of the money supply.
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limiting the number of terms that politicians can serve in elective office.
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returning the economy to barter by prohibiting the use of fiat money.
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to impose price controls on businesses that attempt to raise prices.
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Detailed explanation-1: -One of the main tools The Fed uses to fix inflation is raising interest rates. This is an example of monetary policy. The government can introduce fiscal policies to reduce inflation by increasing taxes or cutting spending.
Detailed explanation-2: -So what causes inflation? Inflation is caused when the money supply in an economy grows at faster rate than the economy’s ability to produce goods and services. In our auction economy the production of goods and services was unchanged, but the money supply grew from round one to round two.
Detailed explanation-3: -Monetarist theory views velocity as generally stable, which implies that nominal income is largely a function of the money supply. Variations in nominal income reflect changes in real economic activity (the number of goods and services sold) and inflation (the average price paid for them).
Detailed explanation-4: -One significant monetary way to curb Inflation is to control the money supply in the economy. If the money supply goes down, the demand for goods will reduce, causing a price fall. Another way to curb the money supply is when the government withdraws specific paper notes or coins from circulation.