What are the three ways to deal with inflation?

Question

my answers are:

1. lower interest rates

2. raise reserve requirements

3. issue open market securities

are these correct? can you elaborate on them? i'm not completely sure about how they can be used to combat inflation...

Answer 1

Red light!

Lowering interest rates is caused by issuing more money, so inflation will actually rise! Raising interest rates is much better.#2 and 3 are good.

Raising reserve requirements decrease the amount banks have available to loan out, and issuing open market securities is the Federal Reserve's method of getting bank money out of the money supply by selling them government bonds.

However, you might also need to give a fiscal policy answer such as decreasing spending (government spending, etc.) or increasing taxes. This would lower demand and slow price increases.

Answer 2

Go to class tomorrow and tell your teacher that Alby said, "Inflation is strictly a monetary policy creation. And to deal with inflation, the policy of the central bank and/or government should be to limit the growth of the money supply."

You "cannot" have inflation if you don't have the money in circulation.