Economics Questions and Answers

One way the central bank can reduce the rate at which banks lend money is by raising the interest rates bank charge on loans, this will discourage people from borrowing from commercial banks.

Inflation is simply when excess money is used in buying few goods. This could be as a result of high wages with no matching productivity. When people have excess money available for spending, their purchasing power will be high, as they will be willing to pay any amount to get goods (which are in limited supply) in this case.

The government can curtail inflation by raising the level of output/production and taking out the excess money in circulation in the economy. This is done through the sale of securities at high-interest rates. When people realize that, the government is offering to sell securities and the interest paid on the securities is high, they will be willing to buy from the government. With this, they are less money available for spending as many people may have invested their excess monies with the government through the purchase of securities.

No explanation has been provided for this answer.

Money is considered a store of value, where it can be used as a means of saving and allocating capital. Where the value of goods and services is on the rise, the purchasing power of money drops. With this, the value of the money that was stored years back will no longer have the same value due to the change in the prices of commodities.

If salaries and wages are increased without a corresponding increase in production, it will lead to inflation. This is so because they will be excess money chasing few the goods that are available in the market.