: What procedures or practices does a government do generally to reduce the money supply from the economy when inflation rises?

Question

: What procedures or practices does a government do generally to reduce the money supply from the economy when inflation rises?

In: 3

Answer 1

The Federal Reserve can decrease the money supply by increasing short-term interest rates. This gives banks a decreased incentive to loan out money.

It can also sell bonds, which takes in cash, thus decreasing the money supply. ( This just kicks the can down the road. In a time of high inflation, most people do not want to buy bonds unless they have a huge payoff when mature. When the money is eventually paid out, that just restarts inflation. )

The one technique which, TTBOMK, no government has ever tried, is to decrease regulation, thus allowing the growth of goods and services. This is technically not a direct answer to your question, for it does not decrease the money supply. But it does allow the growth of goods and services to match the growth of the money supply, effectively stopping inflation.