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Inflation Essay

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What policies can a government and central banks undertake to increase inflation in the Eurozone?

One way in which governments and central banks could increase inflation is by the application of Quantitative easing. This would mean that AD would increase price and price levels raise, thus increasing levels of inflation. What QE is, is the banks buying government bonds or gilt’s from private sector companies, this will make the price of the gilts rise and making them a less attractive investment. Companies can then use the money to invest in other things. This will also raise money supply by lowering interest rates. This will lead to businesses being able to borrow at cheap, for these reasons quantitate easing will increase inflation.
On the flip side QE is wholly dependent on the banks involved and the way in which they treat their customers, if for example a bank does no pass on the money that they are supplied with to the correct people than they are not going to benefit in a way that is satisfactory to shift out the AD curve and raise inflation. Furthermore this could damage confidence that is within the business or consumer and thus leave them with a Purchasing power parity. This will mean that consumers do not have the leverage to borrow at cheap rates and are unwilling to spend and build up unneeded debts.
Monetary policy could be used as a way to raise inflation, by adjusting the interest rates in a country within the Eurozone you can inevitably change the entire outlook of how a consumer can spend the borrow money. The lower interest rates will enable consumers to invest in things that were not applicable to them previously. This will mean that they will spend on goods and services that will shift out the Ad curve, furthermore with a decrease in interest rates the flow of foreign exchange will liven up, more foreign money will flow into a country where

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