What Role Does the Central Bank Play in Managing Inflation?
Central banks play a crucial role in managing inflation through monetary policy. They use tools such as interest rates and open market operations to control the money supply and influence inflation. By raising interest rates, central banks can reduce consumer spending and investment, which helps to cool down an overheated economy and control inflation. Conversely, lowering interest rates can stimulate spending and investment, helping to boost economic activity in times of low inflation.