financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers' preferences, and thus allow financial markets to function in a more normal fashion. Cost-of-living allowance The real purchasing power of fixed payments is eroded by inflation unless they are inflation-adjusted to keep their real values constant. In many countries, employment contracts, pension benefits, and government entitlements (such as social security) are tied to a cost-of-living index, typically to the consumer price index. A cost-of-living adjustment (COLA) adjusts salaries based on changes in a cost-of-living index. It does not control inflation, but rather seeks to mitigate the consequences of inflation for those on fixed incomes. Salaries are typically adjusted annually in low inflation economies. During hyperinflation they are adjusted more often. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves. Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as cost-of-living adjustments ("COLAs") or cost-of-living increases because of their similarity to increases tied to externally determined indexes. Controlling inflation Monetary policy Monetary policy is the policy enacted by the monetary authorities (most frequently the central bank of a nation) to control the interest rateor equivalently the money supplyso as to control inflation and ensure price stability. Higher interest rates reduce the economy's money supply because fewer people seek loans. When banks make loans, the loan proceeds are generally deposited in bank accounts that are part of the money supply, thereby expanding it. When banks make fewer loans, the amount of bank deposits and hence the money supply decrease. For example, in the early 1980s, when the US federal funds rate exceeded 15%, the quantity of Federal Reserve dollars fell 8.1%, from US$8.6 trillion down to $7.9 trillion. In the latter half of the 20th century, there was debate between Keynesians and monetarists