Inflation can be reduced by policies that slow down the growth of AD and/or boost the rate of growth of aggregate supply (AS)
Supply side economic policies:
i.A reduction in company taxes to encourage greater investment
ii.A reduction in taxes which increases risk-taking and incentives to work – a cut in income taxes can be considered both a fiscal and a supply-side policy
iii.Policies to open a market to more competition to increase supply and lower prices
Rising productivity will cause an outward shift of aggregate supply
Direct controls - a government might choose to introduce direct controls on some prices and wages
Evaluation points – how best can inflation be controlled?