Inflation?

The Chairman of the Federal Reserve Bank (Ben Bernake) controls the interest rate at which it lends money to other private banks in the USA. The interest rate that Ben Bernake determines also becomes the interest rate for savings accounts nation wide. The Fed's interest rate will also raise or lower interest rates on mortgages, CDs, and other loans (but those interest rates are not equal to the Fed's interest rate). This more or less controls or influences the interest rates for various financial instruments. And as a result the Fed's interest rate encourages or discourages consumer spending. The Fed's indirect impact on consumer spending is what can increase or decrease inflation.

The government has little to no influence over inflation. Inflation is when the money isn't worth as much/ can't buy as much. This is influenced by how much money is in circulation. The Federal reserve (private bank) controls how much money is in circulation and the government is NOT in charge of them since they are the ones who print the money and LOAN it to the Govt at interest. So if you want somebody to blame for inflation, blame the federal reserve.

As I understand it, inflation means that basic goods and services begin to cost more as a nation grows more advanced. Which is why they can live off cents per day in some third world countries, but it may cost you $30 for a really high-quality meal in a downtown area.

wikipedia . com / FED

Cool, this can be a form of revision for myself for 'A' levels haha. But it's not gonna be detailed, so any other stuffs you can google it. But the following are in theory, depends on on you apply to context. Different countries have different ways to solving inflation like Singapore vs US.

Ok the problem is inflation, but do you know what is the cause of inflation? You need to know the cause of inflation before knowing what type/kind of policy the government have to implement.

There are 2 main types of inflation:
-Demand-pull inflation
-Cost-push inflation (imported cost-push inflation is a subset of this type of inflaiton as well)

Demand-pull inflation

-Shift in aggregate demand curve (C=G+I+net exports)
-Can be caused by a rise in aggregate demand (Keynesian) or a rise in money supply (Monetarist)
-This occurs when aggregate demand persistently exceeds aggregate supply, when the economy is near or at full employment level of output (Keynesian)
-"Too much money chasing after too little goods" (Monetarist)

Policies to solve demand-pull inflation

1. Contractionary monetary policy
- Decrease money supply, increase interest rates
-Affect two economic players: households (borrowers and savers) and firms
-Decrease consumption and foreign direct investments, which are components of aggregate demand; therefore alleviate demand-pull inflation
-Evaluation: Interest elasticity for investment, presence of non-interest rate factors, size of multiplier, context

2. Contractionary fiscal policy
-Decrease government expenditure, increase tax rates
-Affect 2 economic players: households and firms
-Increase in tax rates will result in decrease in consumption due to increase in income tax, tariffs etc or can affect other taxes as long it reduces disposable income and purchasing power of consumers
-Increase in corporate tax etc will result in loss of foreign direct investments due to decrease in rates of returns etc
-Decrease in government expenditure, consumption, investments which are components of aggregate demand
-Evaluation:Difficulty in reducing G, time lag, sie of multiplier, presences of other non-tax rates factors

Cost-push inflation

1. Supply-side policies
-Increase in quantity and quality of both capital and labour
-Improving efficiency and producitvity to decrease cost of production per unit output

2. Price and income policy
-Price ceilling on important essentials

3. Exchange rate policy - Appreciation
-Exports becomes relatively more expensive in foreign currency and imports becomes relatively cheaper in domestiv currency
-Cost of production decrease per unit output
-J-curve effect
-Marshall-Lerner effect

Hope this helps lol.