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Assess the policies that are used to control inflation.
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Assess the policies that are used to control inflation Over the last fifty years we have seen many different policies employed by governments or independent central banks to control inflation. There are 4 main policies that stand out and these are: 1) Monetary policy - controlling the rate of interest or money supply. 2) Fiscal Policy - manipulation of government expenditure and the tax system 3) Exchange policy - Influencing the rate of interest and money supply indirectly 4) Supply side policy Monetary policy is currently employed in the UK where the government manipulates the rate of interest and this indirectly affects the real variables in the economy. An increase in the rate of interest depresses aggregate demand by making the price of consumer durables increases thus decreasing consumption. A high rate of interest also decreases the amount of business investment and thus business confidence. Moreover, the price of mortgage payments increases leaving a household with...
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