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24 July, 06:18

If policy makers are concerned about inflation, which fiscal and monetary policies would be most effective?

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  1. 24 July, 08:51
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    Contractionary monetary and fiscal policy.

    Explanation:

    Inflation refers to the situation where there is an increase in the general price level. It causes nominal prices to increase and the value of cash balances and purchasing power of the consumer to decline.

    A government can correct inflationary pressures by adopting the contractionary monetary and fiscal policy. It can implement contractionary fiscal policy by increasing taxes and reducing government spending.

    Contractionary monetary policy can be implemented by the central bank through an increase in cash reserve ratio, discount rate or selling of securities in the open market.
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