Some Economists Argue That Simply and Suddenly Reducing Money Supply

question 117

Essay

Some economists argue that simply and suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real reform so that people expect that the government will soon start printing more money again to pay for its expenditures, the promise to fight inflation will not be credible. Explain the importance of an inflation reduction policy that is announced ahead of time and is credible.

---

Definitions:

Time Limits

Predetermined periods within which certain tasks should be completed or conditions met.

Purchase Decision

The stage in the consumer decision-making process where a buyer finalizes their choice and proceeds to acquire a product or service.

Limited Temporary Basis

A situation or condition that is imposed for a short duration with restrictions on scope or extent.

Exchange of Money

The process of exchanging money between individuals as compensation for products or services.