In order to control inflation, the government should

1. Analyze the question The question asks which action the government should take to control inflation. Inflation is a persistent rise in the general price level, usually caused by too much money chasing too few goods. To control it, the government must reduce the amount of money (demand) circulating in the economy.

2. Explain the concept Governments, through the Central Bank (the CBN in Nigeria), use monetary policy to manage the money supply:

• Restrictive (tight/contractionary) monetary policy reduces money supply. Tools include raising interest rates, selling securities in the open market, increasing the cash reserve ratio, and credit ceilings. This reduces inflation.
• Expansionary monetary policy increases money supply. Tools include lowering interest rates, buying securities, and reducing the reserve ratio. This is used to fight recession or unemployment, and it can worsen inflation.

3. Evaluate each option

• A. Reduce the cost of borrowing: Lower interest rates make loans cheaper, so people borrow and spend more. Money supply rises, which worsens inflation. ❌
• B. Buy securities in the open market: The CBN pays out money to buy securities, which injects money into the economy. This is expansionary and raises inflation. ❌
• C. Adopt restrictive monetary policy: This reduces money supply and spending, which lowers the pressure on prices. ✅
• D. Discourage savings: Less saving means more spending, which increases demand and inflation. ❌

4. Answer The correct option is C. adopt restrictive monetary policy.

5. Exam tip Remember: "Inflation → Tighten; Recession → Loosen."

• To fight inflation: raise interest rates, sell securities, increase reserve ratios, raise taxes.
• To fight recession: lower interest rates, buy securities, reduce reserve ratios.

A quick check is to ask, "Does this action put more money in people's hands?" If yes, it can cause inflation, so it is not the answer.