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Economics explained


Policies to correct inflation

Policies to correct inflation

Policies to correct inflation

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Inflation occurs when there is a sustained increase in the general price level.

High inflation rates are considered to be damaging to an economy in several ways.

It discourages investment and long term economic growth.

It makes an economy uncompetitive.

It leads to a fall in the value of money and menu costs.

This is why most central banks and governments target low inflation. If inflation rises above this inflation target there are certain economic policies that can be applied.

Policies to solve the problem of inflation include

Deflationary fiscal policy
Deflationary monetary policy
Supply-side policies

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