Answer to Question #213290 in Macroeconomics for geoffrey

Question

1.    The government decides to reduce the interest rates in a bid to boost economic growth through investment. Analysts have argued against this policy citing inflation.

a)    What other factors could also culminate in this kind of inflation?

Answer 1

Governments may utilize price controls and wages, However they may lead to losses of job at some point. Contractionary monetary policy may be an option of minimizing inflation through reduction of money supply in the economy through increased rates of interest and reduced bond prices.