Question

Question 2 Coronavirus epidemic outbreak has had an untold hardship on the economy of Ghana. One of such influences was a rise in inflation rate from 7.8 percent in March, 2020 to 10.6 percent in April of the same year. Assuming this phenomenon persists; discuss the possible monetary and fiscal measures government may use to address the situation. You may use diagrams where necessary.

Answer 1

Monetary Policy Measures:

- Central Bank of Ghana can sell government bonds and securities in the financial market. This action will reduce the domestic current floating in the economy of Ghana. Lower money supply will help in reducing the prices and tries to anchor the inflation rate in upcoming future

- Increase in the discount rates: The Central Bank can increase the discount rates to reduce the flow of money supply. Lower money supply reduces the demand for goods and services and thus helps in keeping the prices low.

Fiscal Measures:

- Increase in the tax rates: Higher tax rates discourage spending. Lower spending will shift the demand curve to the left and the price level will decrease which helps in anchoring the inflation at its natural level.

- Fall in the Ghana' government spending: the Government should reduce its spending on infrastructure in order to control the prices to increase.

Above contractionary fiscal and monetary policy measures can be taken up to fight against the COVID and the upsurge in the general prices level.