ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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effective if the level of inflation is not too high and government is prepared to risk political backlash
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only possible if supply side policy to deal with the frictional and seasonal UE is combined
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only when applied by liberal governments who have price stability as a high priority
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determined by external forces who will determine how effective any policy will be
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Detailed explanation-1: -Inflation can be controlled by a contractionary monetary policy is one common method of managing inflation. A contractionary policy aims to reduce the supply of money within an economy by lowering the prices of bonds and rising interest rates. Thus, consumption falls, prices fall and inflation slows down.
Detailed explanation-2: -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.
Detailed explanation-3: -Monetary policy increases liquidity to create economic growth. It reduces liquidity to prevent inflation. Central banks use interest rates, bank reserve requirements, and the number of government bonds that banks must hold. All these tools affect how much banks can lend.