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Inflation and central bank policies are very connected.
Central banks, like the Federal Reserve, work to keep inflation under control. They do this by changing interest rates and the amount of money available.
Here’s how it works:
Interest Rates: When prices go up (inflation), central banks might increase interest rates. Higher interest rates make it more expensive to borrow money. Because of this, people and businesses may spend less, helping to reduce inflation.
Money Supply: Central banks can also change how much money is in circulation. For example, if they sell government bonds, it takes money out of the economy. This can also help fight inflation.
Example: If inflation is at 5%, the central bank might raise interest rates from 2% to 3%. This can help cool down the economy and keep prices stable.
Inflation and central bank policies are very connected.
Central banks, like the Federal Reserve, work to keep inflation under control. They do this by changing interest rates and the amount of money available.
Here’s how it works:
Interest Rates: When prices go up (inflation), central banks might increase interest rates. Higher interest rates make it more expensive to borrow money. Because of this, people and businesses may spend less, helping to reduce inflation.
Money Supply: Central banks can also change how much money is in circulation. For example, if they sell government bonds, it takes money out of the economy. This can also help fight inflation.
Example: If inflation is at 5%, the central bank might raise interest rates from 2% to 3%. This can help cool down the economy and keep prices stable.