Q.Enumerate the measures for control of inflation.

Inflation can be checked by monetary measures (dearer and tighter credit by the central bank), fiscal measures (cutting government spending, raising taxes and borrowing to mop up excess money), and direct measures (raising output, price control, rationing and wage restraint).

Meaning

Inflation is a situation of a sustained and appreciable rise in the general level of prices, caused mainly by an excess of aggregate demand (money) over the available supply of goods. Its control calls for measures that reduce demand and increase supply.

Measures for Control of Inflation

1. Monetary Measures (by the central bank)

• Raising the bank rate — makes borrowing from the central bank costlier, so commercial banks raise their lending rates, credit contracts and demand falls.
• Open market operations — the central bank sells government securities to absorb excess money from the economy.
• Raising the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) — reduces the lending capacity of commercial banks.
• Credit rationing and selective credit controls — restrict the amount and direction of bank credit.

2. Fiscal Measures (by the government)

• Reducing public expenditure — the government cuts unnecessary spending to reduce total demand.
• Increasing taxes — higher direct and indirect taxes reduce the purchasing power of the people.
• Public borrowing — borrowing from the public withdraws surplus money from circulation.
• Surplus budget — the government keeps revenue above expenditure so that excess money is mopped up.

3. Other / Direct Measures

• Increasing production — raising the output of goods, especially essential goods, to match demand.
• Price control and rationing — fixing maximum prices and distributing scarce goods fairly through the public distribution system. …