Explain the concept of Monetary Policy and Inflation?

Q: Please explain three main objectives of monetary policy?

A: According to the given question Simply in simple words a monetary policy is known to be as that…

Q: Which of the following is NOT an example of monetary policy       A. Lowering the discount rate…

A: Monetary policy is the policy which leads to change in the monetary component (interest rate) in the…

Q: What can the Fed do to reduce inflation when the government is spending too much money in the…

A: Inflation: It refers to a situation in which the prices of the goods and services in the economy…

Q: WHAT ARE THE GOALS OF MONETARY POLICY?

A: The expression "monetary policy" tells the how much cash and credit in the U.S. economy by Federal…

Q: What is a monetary offset?

A: please find the answer below.

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.