(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.
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.
less the production cost
decrease the imports
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.
2)increase value of rupee
3)maintaining demand &supply positions
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