Monetary Policy options given high inflation -, Learning Economics... Solved!


Monetary Policy options given high inflation

Under the case of high inflation, aggregate demand (AD) is too far right, and the government wants to shift it left.  One of its tools is monetary policy, which it can use to set the federal funds rate by buying and selling T-bills in the market.  If the Fed wants to lower inflation, they will want to set the federal funds rate higher, the way they do this is by selling T-Bills.  This means that people/businesses in the market exchange their money for these bonds.

Now people/businesses have bonds instead of money, so there is less money available to use and/or loan.  This lowering of the money supply causes interest rates to rise, which cuts spending (because of higher motivation to save due to higher interest rates). 

The goal of using this tool is to keep inflation low.  Generally high inflation is considered a bad things because money today is not worth as much as money in the future.  Under very high inflation rates an economy will run into costs not associated with a low inflation economy these include menu costs (re-ordering menus/catalogs), or contract costs (no one is willing to sign a long term contract, or give long term loans).


  1. Some policies which has turn thigs down when some could turn it up though. You will get to know abou tthose manu script writers.

  2. In this level of your learning you will find a lot of things where some of them are really different. you will know about some insane online job.

  3. Many smiles on my face right now, after reading glorious article written by an go to page amazing writer. Surely, I will be pleased to see more articles on this website.

  4. There is the new policy of the monetary with the help of which you can find the new place of fun. You can also get more details here and can ask any question from this zone. You can also see the micro lessons from this page.