What role do central banks play in controlling inflation?

What role do central banks play in controlling inflation?

Central banks manage inflation primarily through monetary policy, adjusting interest rates and controlling money supply.

How do interest rates affect inflation?

When central banks raise interest rates, borrowing becomes more expensive, which can reduce spending and lower inflation.

What happens if inflation gets too high?

High inflation can erode purchasing power, lead to uncertainty in the economy, and prompt central banks to intervene.

Can central banks prevent inflation completely?

While central banks can manage inflation, they cannot prevent it entirely due to various external economic factors.

What tools do central banks use to control inflation?

Central banks use tools like interest rate adjustments, open market operations, and reserve requirements to control inflation.