A nation's central bank adjusts interest rates to manage inflation. If inflation is too high, the central bank will increase interest rates to discourage spending.<\/p>
If the central bank raises interest rates too high or too soon, it could cause a hard landing. That is, the economy could dip into a recession.<\/p>
If the central bank raises interest rates slowly or in small increments, it is aiming for a soft landing.<\/p>
It's not as easy as it sounds. A hard landing has serious negative repercussions.<\/p>" } } , { "@type": "Question", "name": "What Are the Main Causes of Inflation?", "acceptedAnswer": { "@type": "Answer", "text": "
The four main causes of inflation<\/a> are demand-pull inflation (when the demand for goods and services is greater than the available supply), cost-push inflation (when production prices rise), an increase in the money supply, rising wages, and a devaluation of a nation's currency.<\/p>"
}
}
,
{
"@type": "Question",
"name": "What Are the Components of Monetary Policy?",
"acceptedAnswer": {
"@type": "Answer",
"text": " A country's central bank has three primary tools to control its monetary policy. These are controlling the reserve requirements of banks, adjusting the discount rate (the interest rate charged to financial institutions when borrowing from the central bank), and open market operations (the buying and selling of securities).<\/p>"
}
}
]
} ] }
]