When an increase in aggregate demand causes higher inﬂation, the central bank should _____ to bring inﬂation back to the target level.
A) increase interest rates
B) restrict exports
C) increase the money supply
D) manage the exchange rate

Question

Quizplus · Accepted Answer

Increasing interest rates is a monetary policy tool used by central banks to combat inflation. By raising interest rates, borrowing becomes more expensive, which can reduce spending and investment, thereby cooling down the economy and reducing inflationary pressures.

When an Increase in Aggregate Demand Causes Higher Inﬂation, the Central