CAIE IGCSE Economics 4.7.5 Policies to control inflation

Match the inflation cause to tighter demand policy or greater productive capacity, then explain effects on consumer spending, borrowing, output and employment.

Exam points

Use higher interest rates, taxes or compulsory saving to reduce consumer demand and inflation.
Use lower government spending or tighter money supply to reduce demand-pull pressure.
Evaluate inflation control using output, unemployment, exchange-rate and time-lag effects.

[Maximum number: 1]

A country wishes to reduce the level of inflation.
Which combination of policy measures will be most successful?

policy measure 1

policy measure 2

decrease exchange rates

increase interest rates

decrease interest rates

increase exchange rates

increase government spending

decrease interest rates

increase interest rates

decrease government spending

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4.7.5—Policies to control inflation question 1