How Inflation is controlled when the supply of money is reduced in the economy? Explain
Dear Student
When money supply is reduced in the economy the flow of liquid money reduces in the hands of people . So people tend to save whatever little cash they have in hand . Hence they reduce their demand . This reduces the aggregate demand in the economy causing prices to come down . Thus inflation gets controlled through reduction of money supply .
Regards .
When money supply is reduced in the economy the flow of liquid money reduces in the hands of people . So people tend to save whatever little cash they have in hand . Hence they reduce their demand . This reduces the aggregate demand in the economy causing prices to come down . Thus inflation gets controlled through reduction of money supply .
Regards .