Cost-push
inflation can lead to a decrease in economic growth and often causes a fall in
living standards, therefore the government needs to take measures to strengthen
confidence in UK which should improve the value of the currency. The government
could pursue deflationary fiscal policy (higher taxes, lower government
spending) or deflationary monetary policy (increase interest rates and reduce
the money supply), which could eventually reduce consumer spending and
investment. However, this will lower disposable income even more. A long-term
solution to cost-push inflation could be supply side policies, which help to
increase productivity and shift the AS curve to the right. Shifting the AS
curve to the right would cause a lower price level, and by making the economy
more efficient these supply side policies would help to reduce cost-push
inflation. Examples for such policies are free market supply side policies such
as lower income tax rates, and interventionist supply side policies such as
higher government spending. However, these policies would not reduce import
cost push inflation instantly, it would take time to take effect.

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