What measures can be taken to reduce inflation?

Implementing contractionary monetary policy is a key strategy to reduce inflation because it involves actions designed to decrease the total money supply in the economy. When inflation is high, central banks may raise interest rates or sell government securities, which limits the ability of banks to lend money. As borrowing becomes more expensive, consumer spending and business investments typically decrease, leading to reduced demand for goods and services. This decreased demand can help bring down prices and curb inflation.

In contrast, increasing government spending, lowering interest rates, and expanding the money supply would generally stimulate economic activity and could lead to higher inflation rather than reduce it. Therefore, contractionary monetary policy serves as a critical tool for central banks aiming to stabilize prices and control inflation effectively.