The increase in Government expenditure made possible by borrowing without being matched by extra taxation causes aggregate demand to rise not only by the increase in government expenditure but also by the multiplier effect of increase in Government expenditure. Thus, both by greater resource mobilisation on the one hand and pruning down of wasteful and inessential Government expenditure on the other, the fiscal deficit and consequently inflation can be checked. Another instrument for affecting credit availability is the Statutory Liquidity Ratio (SLR). As anti-inflationary measure, the rate of interest has to be kept high to discourage businessmen to borrow more and also to provide incentives for saving more.
Besides, inflation sends many people below the poverty line. When inflation beyond an acceptable level is taking place, the country's central bank can increase the interest rate , which typically will tend to slow or stop the growth of the money supply . It consisted of limits on wages and food prices. The attempt by the Government to import goods in short supply would compel the hoarders to release their hoarded stocks. Let us first consider the cost of credit. Some economists agree that a credible incomes policy would help prevent inflation. Not only has the bank rate had to be raised but also the deposit and lending rates of commercial banks if full effect of the monetary measures is to be achieved. Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." U.S. President The 90-day freeze became nearly 1,000 days of measures known as Phases One, Two, Three, and Four,The first wave of controls were successful at curbing inflation temporarily while the administration used expansionary fiscal and monetary policies.Since that time, the U.S. government has not imposed maximum prices on consumer items or labor (although the cap on During the 1974 federal election, Progressive Conservative Party leader Australia implemented an incomes policy, called the Inflation declined during the period of the Accord, which was renegotiated several times. It has been asserted by some economists who are pro-private sector that higher interest rate discourages private investment and therefore lowers rate of economic growth.
Fiscal Policy: Reducing Fiscal Deficit 2. In its recommendation for India IMF has suggested that fiscal deficit in India should be reduced to 3 per cent of GDP if inflationary pressures are to be controlled. They are discussed as follows. To some extent the creation of new money may not generate demand-pull inflation because if the aggregate output increases, especially of essential consumer goods such as food-grains, cloth, the extra demand arising out of newly created money would be matched by extra supply of output. It is through wage-price spiral that inflation gets momentum. However, freezing wages and linking it with productivity only irrespective of what happens to the cost of living has been strongly opposed by trade unions.
Monetary Measures 2. The polder model is widely, but not universally, regarded as successful incomes management policy.Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." The methods of credit control described above are known as quantitative or general methods as they are meant to control the availability of credit in general.
This will have a favourable impact on prices of these goods. Therefore, to check inflation the Government should try to reduce fiscal deficit. Supply Management through Imports 4. Monetary policy is another important measure for reducing aggregate demand to control inflation. One variant is "tax-based incomes policies" (TIPs), where a government fee is imposed on those firms that raise prices and/or wages more than the controls allow. The selective credit controls have both the positive and negative aspect. However, in our view the contradiction between growth and inflation has been exaggerated. To correct excess demand relative to aggregate supply, the latter can also be raised by importing goods in short supply. As mentioned above, the higher rate of interest on saving and fixed deposits will induce more savings by the households and help in cutting down aggregate consumption expenditure.
It is thus clear that budget deficit implies that Government incurs more expenditure on goods and services than its normal receipts from revenue and capital budgets. To contract credit availability Reserve Bank can raise this ratio. The higher the rate of interest, the greater the cost of borrowing from the banks by the business firms. When their wage demands are conceded to, it gives rise to cost-push inflation. There are three ways the government can control the inflation- the monetary policy, the fiscal policy, and the exchange rate. To check this vicious circle of wages-chasing prices, an important measure will be to exercise control over wages. The monetary policy instrument And the most important specified liquid asset for this purpose is the Government securities. Inflation can, therefore, be controlled by increasing the supplies of goods and services and reducing money incomes in […] Monetary Policy: Tightening Credit 3. And this generates inflationary expectations which add fuel to the fire.
It is noteworthy that a recent monetary theory emphasizes that it is the changes in the credit availability rather than cost of credit (i.e., rate of interest) that is a more effective instrument of regulating aggregate demand.
Indeed, effective way to control inflation will be to adopt a broad- based incomes policy which should cover not only wages but also profits, interest and rental incomes.Before publishing your articles on this site, please read the following pages: