Describe The Measures To Control Inflation.

Inflation is the rise in price levels in an economy over a given time period. This means that a given amount of currency will buy a lower number of goods as time passes as it loses its value. For this reason controlling inflation is one of the main economic objectives of a government. There are many ways to control inflation; however most of them work by either increasing aggregate supply or decreasing aggregate demand. Both actions result in the equilibrium moving down. The measures that are required to control the inflation depend on what is thought to be causing it. A government's monetary policy can decrease aggregate demand by increasing interest rates. This will discourage borrowing and increase savings, both of which constrict consumption, thereby decreasing aggregate demand. Fiscal policies can also be used to control inflation. If a government wants to decrease it then it will increase taxation and decrease government spending. This will result in consumers and firms having less to spend, therefore coupled with the lower government spending this will cause leakages to increase and injections to decrease, reducing aggregate demand. Subsidising the costs of firms will decrease production cost allowing them to lower their prices, also reducing inflation. Supply side policies such as education and training will increase the quality and quantity of labour available for firms, which will result in an outward shift of the aggregate supply curve. This will move the equilibrium down, decreasing price levels and therefore also decreasing inflation. Other ways to decrease inflation is to reduce tariffs on imports, as this will lead to lower prices and therefore lower cost-push inflation. Inflation targeting can lower the chances of both types of inflation by decreasing the expectations of inflation. In conclusion short term measures to control inflation seek to decrease aggregate demand, whereas long term solutions want to increase aggregate supply.

Inflation can be controlled by adopting following measures:-

(A). Monetary measures: Monetary measures relate to the control in the supply and circulation of money in the country.
1. Bank rate policy: In case of inflation, the bank rate is increased; the supply of money is controlled.
2. Open market operation: During inflation, the central bank sells govt. securities and price bonds in the open market in order to contract the supply of money.
3. Variable reserve ratio: In order to control inflation, the central bank increases the reservation.
4. Credit Rationing: When there is inflationary pressure, the state bank adopts the policy of credit rationing.
(B). Fiscal Measures: Measures in connection with public borrowing, public expenditures and public revenues are called fiscal measures.
1. Public Borrowing: During inflation, increase the public borrowing, during deflation, decrease in public borrowing.
2. Public Revenues: In order to control inflation, the increase in public revenues by the Govt.
3. Public expenditures: Inflation is also controlled by decreasing the public expenditures by the Govt.
(C). Realistic Measures:
1. Increase the supply of goods and services: When the supply of goods and services is increased, the prices will come down.
2. Population planning: Control on population by adopting different measures of family planning will reduce the demand and finally prices will be controlled.
3. Price control policy: The govt. should adopt strict price control policy against the profiteers and hoarders.
4. Economic Planning: Effective economic planning is necessary to control the inflation in the country.

Inflation is a hydra header monster. It cannot be controlled by taking a single measure. However, if monetary and fiscal measures are wisely coordinated, it can greatly help in controlling the continuous process of rising prices. The main anti inflationary measures both short and long terms are:Containing money supply;The monetary supply should be kept within reasonable limits.

Reducing budgetary deficit;The budgetary deficit should be kept low level. The deficit should be met by disciplined policy of demand management.Emphasis on commodity producing sectors:The government should give special attention to the production of cottons, wheat, vegetables, edible oil etc. it will have soothing effects on inflating.

Commodity balance:The government should have a strict watch on the prices of essential commodities in the country. It should take immediate steps in changing the import and export duties and maintain the availability of goods is reasonable prices.Curtailment of administrative expenses:The curtailment of administrative expenses can have a softening effect on inflation.Closing of the utility stores;The net work of over 700 utility stores has not helped in stabilizing the prices in the country. These are mostly located in big cities and posh localities. The low income groups are least benefiting from them. The earlier they are closed, the better it is.

The measure adopted to control inflation

Reducing the demand
less the production cost
decrease the imports

The bank of england issue bonds to control inflation.

Inflation mainly follows interest rates.
When interest rate goes up inflation goes up, interest rate goes down then inflation goes down.
Because every business uses money, the cost of borrowing money adds to the cost of all goods.

Here is Australian inflation and interest rate data:
Year.Month, RBA Interest, Bank Interest, Inflation
2009.06,   3.00,    5.55,   1.5
2008.06,   7.25,    9.45,   4.5
2007.06,   6.25,    8.05,   3.0
2006.06,   5.75,    7.55,   4.0
2005.06,   5.50,    7.30,   2.5

So adjust interest rate can change inflation.

Dolemi

1)reducing demand
2)increase value of rupee
3)maintaining demand &supply positions

Explain the measure taken by state bank for credit control ?