Q:

How is inflation controlled?

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Quick Answer

There are a wide variety of different tools that countries can use to attempt to control inflation in their economies, including primarily monetary and fiscal policy developments. However, other legal mandates and programs can be instituted to try and control inflation. These include wage regulation and supply policies among others. Not all of these methods are always successful, but many of them can mitigate inflation.

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Full Answer

Inflation is a substantial increase in the prices of goods and services in a country accompanied by an increase in the amount of money. This leads to a net decrease in the value of a given nation's currency. For many different reasons, countries attempt to stop or at least regulate inflation and avoid hyperinflation in their economies.

Two popular methods of dealing with inflation are monetary and fiscal policies. Monetary policy can be used to do things such as increase interest rates, which usually results in more saving and can stem the influx of inflationary changes. This is also beneficial in terms of worldwide trade where it boosts a nation's currency relative to others. Fiscal policy can be used to increase taxes and cut spending, which reduce the growth of demand and help curb inflation.

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