Question

Under what circumstances might it be possible to reduce inflation without causing a recession?

Answer 1

It is possible to reduce inflation without causing a recession if the cost production reduces due to increase in productivity of labour through technological progress. Since prices are marked up over cost of production, the reduction in production costs automatically reduces the price per unit of the commodity. This however does not reduce economic growth since the firms are still making profits as their production function itself has changed such that more is produced using less factors of production. So, in a situation where the cost of production declines, inflation can be controlled without causing a recession.