Role Of Monetary Policy And Fiscal Policy In Controlling Deflation

REMEDIES OF DEFLATION :-

1.Monetary Policy :-

(a) Decrease In Bank Rate :- Decrease of bank rate by the central bank results in decrease in the market rate of interest, which in turn creates credits and thus money supply in the market. Businessman and consumers starts borrowing money.

(b) Open Market Operation :- Under this policy, the central bank purchases back the government securities, which leads to increase in the money supply in the economy.

(c) Variable Reserve Ratio :- In order to control deflation, central bank should reduce this reserve ratio, which increases the deposits of the commercial bank thus increasing credit creation and further money supply in the country.

2. Fiscal Policy :-

 (a) Government Should Cancel Or Reduce Certain Taxes, so that people will have more money and thus this will increase their purchasing power.

(b) Increase In Public Expenditure :- Government should start new public projects such as roads, bridges etc. It will increase employment and thus money in the market.

(c) Repayment Of Old Debts :- During deflation government should repay its old debts to the public as it may lead to extra purchasing power.

Post by:- Akshay Shivankar