MEASURES TO CONTROL INFLATION
Inflation
can be controlled by the following measures.
MONETARY MEASURES
FISCAL MEASURES
MISCELLANEOUS MEASURES
Monetary Measures:
Measure taken by the central bank to control the money supply are called monetary measures or monetary policy. The monetary measures are as under:
Bank Rate:
The central bank of the country rediscount the bills of exchanges presented by the commercial banks. This discount rate is also known as bank rate.
Open Market Operation:
The supply of money decreases in the open market and the level of prices increases. The central bank of country can control the inflation with the help of controlling the money supply in the open market.
Change in Reserve Ratio:
Another important method or measure to control the inflation is that, the central bank can control the inflation in the country by raising the reserve ratio to control the amount of money.
Increase in Margin Requirements:
An increase in the
marginal requirement reduces the amount of money that can be borrowed. Then the
prices decrease with the decrease in supply of money.
Credit Rationing:
The central bank can restrict the amount of loan that a commercial bank
can obtain from central bank. In this way, the prices can be controlled.
Fiscal Measures:
To control inflation there are also some fiscal measures which are as under:
Decrease in Government Expenditure:
The government makes
remarkable cuts in its unnecessary and non productive expenditure. This will
lead to reduce inflationary pressure.
New Taxes:
Another way of controlling inflation is that, sometimes the government impose new tax with intent to reduce purchasing power of people which results in low demand of product and services.
Encouragement of Savings:
The government starts saving schemes for the
encouragement of savings. The decrease in the demand of goods and services will
be a cause of decreasing prices.
Decrease Public Borrowing:
Reduction in government borrowing will
leads to decrease in the supply of money and prices.
MISCELLANEOUS MEASURES
To control inflation,
the miscellaneous measures are as follows:
Decrease in Exports:
The supply of
basic necessities (wheat, rice, sugar etc.) increases in the market by
decreasing in exports of these items. Therefore, the price level decreases with
the increase in supply of goods.
Increase in
Imports:
Such
basic necessities which are not available in the country should be imported, The supply of
these goods can be increased in market to increase their imports and the prices
will also decrease.
Decrease In cost of Production:
The cost of
production decreases by controlling wages, provision pf raw material, modern
methods of production, efficient allocation of resources etc. The production
level increase and prices of goods decrease.
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