Inflation can be reduced sharply if the government is willing to
A)induce a deep recession by employing restrictive monetary policy
B)induce a shallow recession by employing restrictive fiscal policy
C)reduce income tax rates to stimulate aggregate supply
D)increase income tax rates but allow money supply to grow
E)gradually reduce money supply and cut taxes to stimulate growth

Question

Quizplus · Accepted Answer

Inducing a deep recession through restrictive monetary policy, such as by raising interest rates or reducing the money supply, can lead to a decrease in demand for goods and services and subsequently decrease inflation. This method, although drastic, can be effective in reducing inflation quickly. However, it may also have negative impacts on employment and economic growth in the short term.

Inflation Can Be Reduced Sharply If the Government Is Willing