Question

monetary policy is the best tool for achieving a stable and low inflation . discuss

Answer 1

=> USE OF MONETARY POLICY TO AFFECT INFLATION

*Explanation :-

With The Help Of Monetary Policy Central Bank Target/Reduce The Inflation In The Economy. Inflation Occur When Price Level In The Market Is Increase Due to increase In Money Supply. Money Supply Play Major Role In Increasing Inflation In The Economy So With The Help Of The Monetary Policy Central Bank Target The Money Supply. In That Situation To Decrease Inflation In The Economy.In Monetary Policy Central Bank Use Open Market Operation To Reduce Inflation.

When Central Bank Use Open Market Operations (OMO) They Increase The Interest Rates In The Marker So Increased Rates Made less Borrowing For People From Banks. Banks Are Not Able To Borrow More Money In Market So People Have Less Money In Their Hand So Eventually Money Supply Is Decrease In The Economy And Demand Also Decrease So it Leads To All The Prices Down. Which Means Peoples Expenditure Is Low So The Inflation Rate Goes Down. So Central Bank Process That To Decrease Inflation In The Economy If they Provide Money To Economy It Leads To Increase In inflation And When the reduce Money Or Take Back Money From The Market Inflation Is Decrease. So With The Change In Interest rate They Increase Or Decrease Money Supply In The Market Which Help Them To Control Inflation.

So For Central Bank Monetary Policy is The Best Tool for Achieving A Stable And Low Inflation In The Economy.