Question

Which action by the federal reserve would help to slow down rising inflation?

Answer 1

Policies that can be taken to overcome the problem of inflation are:

Fiscal policy

• Save Government Expenditures
• Increase Tax Rates

Monetary policy

• Determination of Cash Inventory Policy
• Discount Policy
• Open Market Operations Policy

Other Policies

• Increase Production & Increase Number of Goods in the Market
• Setting a Maximum Price for Several Types of Goods

Further Explanation

Inflation is a state of the economy in a country where there is a tendency to increase prices of goods and services in general in a long time (continuous) due to the imbalance in the flow of money and goods. Inflation is an economic phenomenon that cannot be completely eliminated.

There are several factors that influence inflation. In general, the cause of inflation is due to an increase in demand and production costs. In detail, here are some of the causes of inflation:

Rising Demand (Demand-Pull Inflation)

This can be caused by several factors, including:

• Increased government spending
• Increased demand for goods to be exported
• Increased demand for goods for the private sector

Increased Production Costs (Cost Pull Inflation)

As for the increase in production costs caused by rising prices of raw materials, for example:

• Fuel prices go up
• Labor costs are rising
• High Circulation of Money

The types of inflation can be divided based on 3 things, namely the severity, causes, and sources. Next, we look at the division in detail:

Based on the severity, inflation is divided into 4 namely:

• Mild Inflation
• Moderate Inflation
• Heavy inflation
• Very Heavy Inflation (Hyperinflation)

Based on the cause, inflation can be divided into 3, namely:

• Demand-pull inflation, namely inflation that occurs because the demand for goods/services is higher than can be met by producers.
• Cost-push inflation, namely inflation that occurs due to an increase in production costs so that the price of goods supply rises.
• Bottleneck inflation, which is mixed inflation caused by supply or demand factors.

Based on the source, inflation can be divided into 2, namely:

• Domestic inflation, namely inflation sourced from within the country.
• Imported inflation, namely inflation sourced from abroad.

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Details

Class: High School

Subject: Business

Keywords: Inflation, economic, policy

Answer 2

The action that the federal reserve would do is Sell Bonds.
By selling the bonds, the money will circulate from the hands of the people to the bank in exchange for interest revenue.  Since now there is less money circulated in the market, it will become rare and the currency power will start to increase again over time.