Q.Enumerate the measures for control of inflation.

The measures to control inflation fall into three groups: monetary measures by the central bank that reduce the money supply and credit, fiscal measures by the government that reduce excess demand, and other direct measures such as raising output, price control and rationing.

Meaning

Inflation is a continuous rise in the general price level, which reduces the purchasing power of money. To check it, the excess of demand over supply must be removed, using the following measures.

1. Monetary measures (taken by the central bank)

• Raising the bank rate so that borrowing becomes dearer and credit contracts.
• Increasing the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to reduce the lending capacity of banks.
• Open-market operations: selling government securities to absorb money from the economy.
• Qualitative controls such as raising the margin requirement and regulating consumer credit.

2. Fiscal measures (taken by the government)

• Reducing public (government) expenditure to lower aggregate demand.
• Increasing taxes, especially direct taxes, to cut the disposable income and spending of the people.
• Public borrowing to mop up excess purchasing power from the public.
• Running a surplus budget rather than a deficit budget.

3. Other measures

• Increasing the production and supply of goods, especially essential goods. …