Question
Country Y is experiencing high inflation rates due to a
combination of factors, including supply chain disruptions, rising energy prices, and loose monetary policy. Which of the following measures is the central bank of Country Y likely to take to curb inflation?Solution
To combat high inflation, the central bank is likely to increase interest rates. This will make borrowing more expensive, reduce consumer spending and investment, and ultimately lower aggregate demand, leading to a decrease in the inflation rate.
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