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Impact of Inflation

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Impact of Inflation

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  • Have you heard about the major inflation that our country is going through? I don't know what we're possibly going to do to fix it. What could the government or FED do and who would be more effective at solving this issue.
  • Yikes! That is not good. I bet we could use some fiscal policy tools to solve this inflation issue. Two methods that might be effective are selling bonds or increasing rates!
  • Wow. That sounds super awesome. Though, I also heard something about FED tools. How could that be used to solve inflation?
  • Selling bonds helps with inflation because it reduces the amount of money in circulation in the economy, which will decrease inflation. Increasing rates helps with inflation because it means the economy will have to borrow money which means people will spend less. This will cause goods and services to drop leading to a decrease in inflation.
  • Oh yeah, I have heard about OMO. Apparently, the government can use OMO by raising the cost to borrow loans and also raise interest rates. It sounds like we have many ways to solve our inflation problem.
  • Yes, you are thinking of federal tools . There are 3 federal tools that would help with inflation which are OMO, federal funds rate, and discount rates.
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