Measures to control inflation, Managerial Economics

Measures to control inflation

An inflationary situation can effectively be addressed/tackled if the cause is first and foremost identified.   Governments have basically three policy measures to adopt in order to control inflation, namely:

Fiscal Policy:  This policy is based on demand management in terms of either raising or lowering the level of aggregate demand.  The government could attempt to influence one of the components C + I + G (X - M) of the aggregate demand by reducing government expenditure and raising taxes.  This policy is effective only against demand-pull inflation.

Monetary Policy:  For many years monetary policy was seen as only supplementary to fiscal policy.  Neo-Keynesians contend that monetary policy works through the rate of interest while monetarists' viewpoint is to control money supply through setting targets for monetary growth.  This could be achieved through what is known s medium term financial strategy (MTFs) which aims to gradually reducing the growth of money in line with the growth of real economy - the use of monetary policy instruments such as the bank rate, open market operations (OMO) and variable reserve requirement (cash & liquidity ratios).

Direct Intervention:  Prices and incomes policy: Direct intervention involves fixing wages and prices to ensure there is almost equal rise in wages and other incomes alongside the improvements in productivity in the economy.  Nevertheless, these policies become successful for a short period as they end up storing trouble further, once relaxed will lead to frequent price rises and wage fluctuations.  Like direct intervention, fiscal and monetary policies may fail if they are relied upon as the only method of controlling inflation, and what is needed is a combination of policies.

Posted Date: 11/30/2012 4:47:09 AM | Location : United States







Related Discussions:- Measures to control inflation, Assignment Help, Ask Question on Measures to control inflation, Get Answer, Expert's Help, Measures to control inflation Discussions

Write discussion on Measures to control inflation
Your posts are moderated
Related Questions
Hayek explaination Under a fractional reserves system, it is possible for the banking system to supply resources to entrepreneurs for investment in excess of resources that are

DETERMINANTS OF MONEY SUPPLY The total supply of nominal money in the economy is determined by the joint behaviour of the central bank which controls the total issue of the hig

Q. What is Monopoly? The term 'Monopoly' has been derivative of Greek term 'Monopolies' that means a single seller. So, monopoly is a market condition in that there is a single

Shifts in the supply curve Shifts in the supply curve are brought about by changes in factors other than the price of the commodity. A shift in supply is indicated by an entir

Relevance of The Law of Diminishing Returns The law of diminishing returns is important in that it is seen to operate in practical situations where its conditions are fulfille

Q. Availability of Substitutes - Determinants of Demand? One of the most important determinants of elasticity of demand for a commodity is availability of its substitutes. Clos

Cheap Labour   It is often argued that the economy must be protected from imports which are produced with cheap, or 'sweated", labour.  Some people argue that buying foreign

Indian industry has progressed a lot because of globalization. A lot of development has been seen in Indian industry.

Intended or planned Investment Expenditure on investment depends on business expectations on the chance of making profits and on the availability of funds for the purchase of p

• Budget constraint, budget line, budget set, Budget constraint is a very important concept in economics and is utilized even in advanced economic theory. Let the competent tutors