Government can curb inflation by_________

Analyze the question: The question asks how government can curb (reduce) inflation. Inflation is a persistent rise in the general price level, usually caused by too much money chasing too few goods. To curb it, government needs to reduce the money supply or total spending (demand) in the economy. This is called a contractionary (tight) policy.

Concept: Open Market Operations (OMO) This is a monetary policy tool used by the Central Bank (the CBN in Nigeria):

• Selling securities (treasury bills, bonds) → people and banks pay money to the CBN → money leaves circulation → money supply falls → inflation is curbed.
• Buying securities → CBN pays money into the economy → money supply rises → this can fuel inflation (used to fight deflation or recession).

Step-by-step evaluation of the options:

• A. Encouraging banks to lend for any purpose. More loans means more money in circulation and higher spending, which increases inflation. ❌
• B. Increasing her own expenditure. More government spending raises aggregate demand and pushes prices up. To curb inflation, government should reduce spending. ❌
• C. Buying treasury bills in the open market. Buying releases money into the economy, which increases the money supply and worsens inflation. ❌
• D. Selling securities in the open market. This withdraws money from circulation, reduces the money supply and spending, and so helps bring down prices. ✅

Answer: D.

💡 Exam tip: Remember "Sell to Shrink, Buy to Boost."

• Sell securities → money shrinks → fights inflation.
• Buy securities → money boosts → fights deflation/recession.

Keep it up! Open market operations questions appear often in WASSCE, NECO and JAMB Economics.