ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -For example, a central bank might increase interest rates to counter demand-pull inflation, leading consumers to spend less on housing and products. This in turn lowers demand, allowing producers to catch up with supply and restoring balance. Governments can also reduce government spending or raise taxes.

Detailed explanation-2: -The central bank tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate and federal funds rate. Boosting interest rates increases the cost of borrowing and effectively reduces its attractiveness.

Detailed explanation-3: -Tight monetary policy aims to slow down an overheated economy by increasing interest rates. Conversely, loose monetary policy aims to stimulate an economy by lowering interest rates.

Detailed explanation-4: -Demand-pull inflation is a tenet of Keynesian economics that describes the effects of an imbalance in aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. This is the most common cause of inflation.