Question

How could the state out the inflationary effects?

Answer 1

Answer:

Erodes Purchasing Power. This first effect of inflation is really just a different way of stating what it is. Inflation is a decrease in the purchasing power of currency due to a rise in prices across the economy. Within living memory, the average price of a cup of coffee was a dime.

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Answer 2

Answer:

Well,

Explanation:

Governments can use wage and price controls to fight inflation, but that can cause recession and job losses. Governments can employ a contradictory monetary policy to fight inflation by reducing the money supply within an economy via decreased bond prices and increased interest rates.

• Increased interest rates will help reduce the growth of aggregate demand in the economy. The slower growth will then lead to lower inflation.
• Increased interest rates increase the cost of borrowing, discouraging consumers from borrowing and spending.