Inflation in the developing country of terbia has been rising over the last few years and is currently at a very high level. two stock market analysts, stanley durro and michelle thompson, are discussing the possible causes of inflation. michelle thinks that the real reason why prices are rising is because terbia's economy is expanding. stanley disagrees. he argues that the inflation is not demand driven; on the contrary, too much money in the economy is increasing the price level.

Question

Kamari Hull

Business

30 April, 19:30

Inflation in the developing country of terbia has been rising over the last few years and is currently at a very high level. two stock market analysts, stanley durro and michelle thompson, are discussing the possible causes of inflation. michelle thinks that the real reason why prices are rising is because terbia's economy is expanding. stanley disagrees. he argues that the inflation is not demand driven; on the contrary, too much money in the economy is increasing the price level.

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Answers (1)

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Elena Zuniga · Answer 1

C) The central bank has been increasing the target interest rate at regular intervals and it is now at its highest level in eight years.

Explanation:

Since the central bank has been increasing the interest rates in Terbia, this means that it has been engaging in a contractionary monetary policy. In other words, the central bank has been decreasing the money supply in Terbia. If the money supply has been decreasing constantly during the last 8 years, then the high inflation rate cannot be caused by an increase in the money supply.