Answer to Question #251248 in Macroeconomics for olga

Question

a)Discuss the major causes of inflation in reference to your country b)As a student of Macroeconomics, provide possible solutions to the above in your country

Answer 1

a) Major causes of inflation in the United States

1. Expansionary monetary policy. When the Federal Reserve implements expansionary monetary policy, the money in the economy increases. When the amount of money circulating in the economy exceeds the rate of production, demand-pull inflation will occur. 
2. Increase in the cost of production. Higher costs of production cause cost-push inflation. When the cost of production such as the price of oil and wages increases, inflation will occur. 

b) Solutions to manage inflation

1. Sound monetary policy. The Federal Reserve should ensure that it implements sound monetary policies that facilitate stable growth without necessarily causing high inflation or deflation. The Fed should therefore ensure that the money supply does not surpass the rate of production. 
2. Better supply-side policies. The federal government should put measures in place meant to reduce the cost of production. For example, production subsidies and lower taxes on inputs will help bring down the cost of production and thus reduce inflation.