Measures To Control Inflation

Measures to control Inflation
Monetry Policy & Fiscal Policy
Monetarists emphasize keeping the growth rate of money steady, and using monetary
policy to control inflation (increasing interest rates, slowing the rise in the money
supply). Keynesians emphasize reducing aggregate demand during economic expansions
and increasing demand during recessions to keep inflation stable. Control of aggregate
demand can be achieved using both monetary policy and fiscal policy (increased taxation
or reduced government spending to reduce demand).
Wage and Price Control
Another method attempted in the past have been wage and price controls ("incomes
policies"). Wage and price controls have been successful in wartime environments in
combination with rationing. However, their use in other contexts is far more mixed.
Notable failures of their use include the 1972 imposition of wage and price controls by
Richard Nixon. More successful examples include the Prices and Incomes Accord in
Australia and the Wassenaar Agreement in the Netherlands.
In general wage and price controls are regarded as a temporary and exceptional measure,
only effective when coupled with policies designed to reduce the underlying causes of
inflation during the wage and price control regime
Cost of Living allowance
In many countries, employment contracts, pension benefits, and government entitlements

(such as social security) are tied to a cost-of-living index, typically to the consumer price
index.[50] A cost-of-living allowance (COLA) adjusts salaries based on changes in a cost-
of-living index. Salaries are typically adjusted annually in low inflation economies.
During hyperinflation they are adjusted more often.[50] They may also be tied to a cost-of-
living index that varies by geographic location if the employee moves.
Gold Standard
The gold standard is a monetary system in which a region's common media of exchange
are paper notes that are normally freely convertible into pre-set, fixed quantities of gold.
The standard specifies how the gold backing would be implemented, including the
amount of specie per currency unit.
Under a gold standard, the long term rate of inflation (or deflation) would be determined
by the growth rate of the supply of gold relative to total output.[45] Critics argue that this
will cause arbitrary fluctuations in the inflation rate, and that monetary policy would
essentially be determined by gold mining,[46][47] which some believe contributed to the
Great Depression
In short:-
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.
(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.

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Measures To Control Inflation

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Measures to control Inflation

Monetry Policy & Fiscal Policy

Wage and Price Control

Cost of Living allowance

In many countries, employment contracts, pension benefits, and government entitlements

3. Public expenditures: Inflation is also controlled by decreasing the public expenditures

(C). Realistic Measures:

2. Population planning: Control on population by adopting different measures of family

4. Economic Planning: Effective economic

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