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How can the Feds and the US Government keep inflation down without raising interest rates or otherwise damping economic growth?

Economics Dec 15, 2020

How can the Feds and the US Government keep inflation down without raising interest rates or otherwise damping economic growth?

Expert Solution

The Fed can lower money supply. This will lower inflation according to Quantity Theory of Money without dampening economic growth. Excess supply of money-- excess demand of bonds-- interest rates decrease-- investments rise--aggregate demand rise.

The Fed can appreciate the USD which will make imports cheaper. This will lower inflation. Foreign capital will increase coming to the US. Asset returns will increase. Income rises.

The US government can pursue productivity improvement measures and other profit enhancing moves in the industries and the services sectors. This will raise corporate earnings and lower inflation without damping growth.

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