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Lysbilde: 1
Yeah! Raising taxes can help reduce an individual's spending power so they stop spending money and demanding so much. Also, increasing government spending can help put more money in the economy than is being taken out, which helps curb the inflation rate.
Wow! I had no idea!
Did you know that there are two fiscal policy tools to help reduce inflation?
Lysbilde: 2
I'll teach you! There's Reserve Requirements, Discount rates, and open market operations. Open market operations help with adjusting federal funds rates, which in turn influence short/long term rates.
No! I've only learned about Fiscal so far.
It's good you know that,but did you know that there are also three Monetary policies that also help?
Lysbilde: 3
Monetary tools can also impact the Loan-able funds market by decreasing loan-able funds and increasing interest rate. This makes borrowing more expensive, reducing the demand for Loan-able funds. This would also make aggregate demand go down and aggregate supply increase
Well if there's TWO tools, how do they decide which one is more effective in helping reduce inflation?
Thank you for teaching me more about these tools!!
Well, it really depends, but Monetary is overall better. It can be implemented way quicker and is less subject to political influence.

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