Suppose the economy is currently suffering from inflation. In order to decrease the price level:

Question

Quizplus · Accepted Answer

Inflation occurs when the money supply in the economy grows faster than the rate of economic growth. Therefore, to combat inflation, the growth rate in the money supply could be decreased. This slows down the availability of money for spending which in turn slows down demand and hence inflation. Increasing government spending, decreasing taxes or decreasing aggregate supply can lead to an increase in demand and therefore lead to higher inflation.

Suppose the Economy Is Currently Suffering from Inflation