Price increases {inflation, economics}| stop by reducing demand.
demand
Excess planned business investment, decreased planned saving, and government budget deficit cause excess demand.
government
Raising interest rates decreases planned business investment. Raising interest rates can increase planned savings. Government can tax more or spend less to reduce demand. Government can change price expectations through communication with public and businesses. Higher worker wage demands make higher prices from businesses {wage-price spiral}, but government can block them.
inflation
Government receives political pressure from people with fixed incomes, because inflation reduces money value. Inflation decreases long-term lending, because money value decreases over time, and people do not want repayment with lower-value currency.
Social Sciences>Economics>Macroeconomics>Economic Cycle
6-Economics-Macroeconomics-Economic Cycle
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Date Modified: 2022.0224