Question

Which of the following is not a method of controlling inflation?

• A. Control over supply of currency
• B. rationing of goods
• C. control on demand
• D. reduction in interest rate

Answer 1

Answer:

D. reduction in interest rate

• Reducing interest rates typically stimulates borrowing, spending, and economic growth, which can actually fuel inflation.

• The other options are methods to control inflation:

1. Control over supply of currency : Reduces money circulation, decreasing inflationary pressures.

2. Rationing of goods : Limits consumption, reducing demand-pull inflation.

3. Control on demand : Reduces aggregate demand, alleviating inflationary pressures.

• To control inflation, interest rates are usually increased, not decreased, to ;

1. Reduce borrowing and spending

2. Increase savings

3. Reduce money circulation

• Higher interest rates help combat inflation by reducing demand and slowing economic growth.