Measures to control inflation, Managerial Economics

Assignment Help:

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.


Related Discussions:- Measures to control inflation

Show the efficient method of production, Technically Efficient Method of Pr...

Technically Efficient Method of Production Let's suppose that commodity X is produced by two methods by employing capital and labour: Factor inputs Met

What is the role of managerial economics in organizations, A. Write a detai...

A. Write a detailed essay on the importance of economics to managers. OR  What is the role of managerial economics in organizations ? B. What are the methods of measuring nation

The contributor of economics, who are the contributors in economics and wha...

who are the contributors in economics and what they contribute in economics

Problems in using arc elasticity, The use of arc elasticity in economic ana...

The use of arc elasticity in economic analysis involves a good deal of chariness since it is capable of being misinterpreted. Arc elasticity coefficients vary between the same two

What do you mean by external economies, Q. What do you mean by External Eco...

Q. What do you mean by External Economies? External economies arise outside the firm as a result of improvement in industrial environment in that the firm operates. They are ex

Structure of population and supply of labour, THE STRUCTURE OF POPULATION A...

THE STRUCTURE OF POPULATION AND SUPPLY OF LABOUR The structure (also called age distribution or composition) of population, or the number of people in the different age groups

Managerial economics helps create utility for the society, The theory of co...

The theory of consumer's behavior seeks to explain the determination of consumer's equilibrium. Consumer's equilibrium refers to a situation when a consumer gets maximum satisfacti

Interest and the keynesian liquidity preference theory, Interest and the Ke...

Interest and the Keynesian Liquidity Preference Theory Interest is a factor income in that it is considered to be payment to or return on capital in the sense that it is payme

Healthcare economics, I was given a few spreadsheets and asked to do an inc...

I was given a few spreadsheets and asked to do an income, balance and cash flow statement. It''s a lot of info and I have no idea what I''m doing

Law of demand, explain the law of demand. briefly discuss the exception to ...

explain the law of demand. briefly discuss the exception to the law of demand

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd