REMEDIES OF INFLATION :-
Increase
in the quantity of money or declining production in the country are the main
reasons of inflation. The remedies are as follows :
1. Monetary Policy :- Reserve bank is empowered to control
the credit as well as money in circulation. It is known as "Monetary Policy"
of the government which is implemented through the central bank. When quantity
of money increases in the country, central bank tries to reduce the money in
circulation by following ways :-
(a) Bank Rate Policy :- Bank rate is the interest rate which
the central bank charges on the loans which it gives to commercial banks.
Increase in the bank rate by the Central bank would discourage the commercial
banks from taking loans. This would further increase the market rate of
interest. This further decreases the money supply as borrowings decreases by
the businessmen and the consumers.
(b) Open Market Operations :- When government want to reduce the
quantity of money in circulation it issues the securities for the sale in open
market. people purchase the government securities and deposit the money with
the government. This reduce the quantity of money from the market.
Central
bank by law can control the loan activity of commercials banks. It will ask
them not to give more loans to the traders so that there should not be more
quantity of money in the market.
(c) Variable Reserve Ratio :- Every commercial bank has to keep
cash with the Central bank. In order to control inflation, the Central bank
increases the variable reserve ratio, which reduce the deposits of the
commercial bank thus reducing their credit creation and money supply in the
market.
(d) Selective Measures :- Under the selective measures the
central bank tries to control credit by reducing or controlling consumers
credit.
2. Fiscal Policy :- Fiscal policy means, policy of the
government related to taxes, public borrowings and pubic expenditure. The
methods adopted under fiscal policies are as follows :
a. Increase In Tax :- When government wants to reduce the
money in circulation it increases the rate of taxes. Thus, the increase in
taxes withdraws the excess money from the people and decreases the disposable
income in their hands hands and finally reduces the pressure on demand for
goods and the prices are controlled.
b. Private Saving :- Government encourages the people to
save more money. It introduces various small saving schemes in the country.
Thus reduces the percentage of money from the market.
c. Delay In Payment Of Old Debts :- During inflation government should
not repay its old debts to the people. Therefore if government reduces its
unnecessary administrative expenditure in the country, it will check the
circulation of money in the people.
d. Reduction In Public Expenditure :- Government expenditure means
increase in the income of the people. Therefore if government reduces its
unnecessary administrative expenditure in the country, it will check the
circulation of money in the market.
3. Rationing :- Government opens the ration shop and
issue the essential commodities at a fair price to the people thus the society
will be protected from the price rise.
4. Control Of Price :- Government by way of an order can
decide the prices of essential commodities in the country. Traders cannot sell
their commodities at more prices then what is declared by the govt. Above two
measure are known as the "Direct Contrl Remedies".
5. Encouragement To The Producers :- Government gives various facilities
to the produces to increase the production. Government may give concession,
electricity, taxes and provide subsides
for their encouragement. If the production increases it will equalize
the demand for commodities and prices will reduce.
6. Import Policy Of The Government :- Government gives more facility for
the import of scares commodity. It encourages the import in the country.
Similarly, export of the necessity commodities will be controlled and
prohibited. Thus there will not be shortage of commodities in the market.
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