Question
What can be the possible steps to prevent inflation?
I. Change the monetary policy. II. Controlling the money supply. III. Higher Income Tax rate. IV. Invest in long-term investments. Which of the given above options are correct?Solution
Inflation faced by Indian consumers shot up to a nearly eight-year high of 7.8% from 6.95%. Prevention of inflation
- Change the monetary policy: The primary strategy is to change the monetary policy by adjusting the interest rates. Higher interest rates decrease the demand in the economy. This results in lower economic growth and therefore, lowers inflation.
- Controlling the money supply can also help in preventing inflation.
- Higher Income Tax rate can reduce spending, and hence resulting in lesser demand and inflationary pressures.
- Invest in long-term investments: When it comes to long-term investments, spending money now for investments can allow you to benefit from inflation in the future.
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