Question

How do government counter inflations

Answer 1

Inflation in simple terms can be defined as general rise of price level of goods and services over a given period of time .

Inflation is good but upto a certain level but if it exceeds up to certain limit then it is not good for the government and as well as for the economy .

So government take the following measures to control it-

1.By using contraction monetary policy -In this government decrease the bond prices and increase the interest rate so that it leads at a higher rate to the commercial banks.

If the money supply is less in the economy then it will help in controlling inflation .

2 Reserve requirements -In this the government holdsmore money in its reserve account and less spending and use of it to control inflation