Question

Government should _ the bank rate to reduce inflation​

Answer 1

Answer:

Inflation occurs when an economy grows due to increased spending without a concomitant increase in the production of goods and services. When this happens, prices rise and the currency within the economy is worth less than it was before. The currency essentially won’t buy as much as it would before. When a currency is worth less, its exchange rate weakens when compared to other currencies. However, this depends on whether other countries are inflating less than yours. If they are inflating faster than your country, your currency might strengthen, which is a basic purchasing power parity argument.