ECONOMIC POLICIES TO CONTROL INFLATION

 MONETARY POLICY-INTEREST RATES

• increase in interest rates & a contraction in the real money supply
• discourage borrowing by households & companies
• increase the rate of saving
• will reduce disposable Y
• business investment may also fall , as the cost of borrowing funds will increase

FISCAL POLICY

• higher direct taxes= less disposable Y
• lower gov spending to reduce AD
• a reduction in the amount the gov sector bprrpws each year
• increase the rate of leakeages from the leakages in the…