Question

g If the central bank of an economy with a fixed exchange rate wants to lower inflation, then Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a expansionary monetary policy will be effective. b contractionary monetary policy will be effective. c monetary policy will be ineffective.

Answer 1

b contractionary monetary policy will be effective.

Step-by-step explanation:

Inflation occurs when excess money is used to buy goods, that is price of basket of goods rises. It results from a decline in the value of money.

Central banks are tasked with control of a country's economy and rising inflation needs to be reduced.

To do so the Central Bank uses contractionary monetary policies aimed at reducing money in circulation.

The rationale is that the more scarce money is the more the demand for it, and in turn the more value it will have.

Contractionary monetary policies includes increase in interest rate to make lending more expensive, and selling of government bonds to the public in order to mop up excess cash