Question

Economists managing the economy through monetary policy have an ultimate goal to keep inflation at what is considered an acceptable level. How do economists attempt to meet these goals? 1. Using interest rates to control the money supply 2. Encouraging technological advances 3. None of the above 4. Enacting laws that prevent the importing of products from countries that have a history of civil unrest

Answer 1

To meet the goals of low inflation, economists primarily use interest rates to control the money supply through monetary policy, which is managed by a nation's central bank. The correct answer is option 1.

Step-by-step explanation:

Economists aim to maintain inflation at an acceptable level primarily through monetary policy. A nation's central bank, like the Federal Reserve in the United States, manages monetary policy, which includes adjusting interest rates that consequently influence bank lending and the broader financial capital markets. By manipulating interest rates, the central bank can control the money supply to either encourage spending and investment during economic downturns or curb it during periods of high inflation to prevent the economy from overheating.

While technological advances and trade policies, such as the importing of products, may have longer-term effects on economic efficiency and competitive dynamics, they are not the primary tools for managing inflation in the short term. These areas contribute to economic policy but do not directly pertain to the primary goal of maintaining inflation levels through immediate adjustments in the monetary policy.