Inflation in an economy can be controlled by increasing the interest rates.

Question

Quizplus · Accepted Answer

When interest rates are increased, it becomes more expensive for individuals and businesses to borrow money. This generally reduces consumer spending and investment, leading to a decrease in demand for goods and services. As a result, prices of goods and services will likely fall or stabilize, ultimately reducing inflation. On the other hand, if interest rates are lowered, it becomes cheaper to borrow money, which can stimulate consumer spending and investment, leading to an increase in demand for goods and services. This can cause prices to rise, ultimately fueling inflation.

Inflation in an Economy Can Be Controlled by Increasing the Interest