Hi The question says " A highly developed economy has been in recession for a number of years, with interest rates and inflation at historically low levels" In part i) regarding reasons of increase in interest rates by central bank. The solution says that the govt may want to control inflation and economic growth, therefore planning to increase interest rates. I do not understand that why the govt want to control inflation and growth when the economy is already in recession and inflation is at very low level?
Hi Komal, it may be that the government is concerned that inflation could rise rapidly given the cost of borrowing is so low, so therefore raise interest rates to help prevent this (though this could also lead to a reduced level of economic growth). This question is covered in depth in the ASET pack, which is avaiable ActEd eStore, so it may be worthwhile purchasing this to get a much deeper understanding of the rest of the question too (product is: ASET (2014-2017 Papers) eBook) Thanks Aman ActEd Tutor
