Question

If the economy is experiencing inflation, which of the following are correct tools the government could use?

Answer 1

Inflation requires prices to rise across a "basket" of goods and services, such as the one that comprises the most common measure of price changes, the consumer price index (CPI). When the prices of goods that are non-discretionary and impossible to substitute – food and fuel – rise, they can affect inflation all by themselves. For this reason, economists often strip out food and fuel to look at "core" inflation, a less volatile measure of price changes.