REYES, ANGELO

HOW TO CONTROL INFLATION

How the Government control inflation.
 Monetary policy
- The most common way to control inflation is monetary policy.
The purpose is to reduce an economy's money supply through lowering bond prices and
increase interest rates. The central bank raises the interest rate on commercial bank
borrowings. As a result, commercial banks raise their interest rates on consumer loans.
Individuals prefer to save money rather than invest in new ventures. This would lower the
market's money supply, which would control inflation.

 Fiscal policy
- The government also uses fiscal measures to control inflation.
In addition to monetary policy, the government uses fiscal measures to keep inflation
under control. Government revenue and government expenditure are the two fundamental
components of fiscal policy. The government controls inflation through fiscal policy by
reducing private spending, reducing government expenditures, or combining the two.

By raising taxes on private firms, it reduces private spending. When private spending
increases, the government reduces its expenditures to keep inflation under control.
However, under the current situation, reducing spending is impossible because there may
be ongoing social welfare initiatives that cannot be postponed.