If there is inflation above the level acceptable to a centralbank, does the central bank...

If there is inflation above the level acceptable to a central bank, does the central bank increase or decrease the money supply?

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Expert Solution

Central bank decreases the money supply.

Money supply have direct relationship with level of inflation.

Increase in money supply increases the money in hands of public and they increases the demand which increases the price levele, hence inflation increases.

When there is higher inflation central bank decreases the money supply in order to decrease the inflation and when there is lower inflation central bank increases the money supply in order to increase the inflation.

Rahul Sunny answered 1 year ago

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