01-31-2014, 01:07 AM
WHAT IS THE BEST WAY TO CONTROL INFLATION?
It depends on what is driving the inflation. If it is an excess of money supply, then the answer is to increase interest rates, increase bank reserve requirements, and to sell government securities to the banks. These measures also work if the inflation is caused by rising import prices at times when the Indian currency is falling. Fiscal policy can also contribute to lower demand and money supply by increasing taxes.
If it is from excessive government demand, then the answer is for the government to reduce spending. If from excessive consumer demand then the government can introduce policies that promote saving over spending.
If it is caused by demographic factors, such as large family sizes and a lot of young people as a percentage of the population, then policies that encourage smaller families will be effective.
It depends on what is driving the inflation. If it is an excess of money supply, then the answer is to increase interest rates, increase bank reserve requirements, and to sell government securities to the banks. These measures also work if the inflation is caused by rising import prices at times when the Indian currency is falling. Fiscal policy can also contribute to lower demand and money supply by increasing taxes.
If it is from excessive government demand, then the answer is for the government to reduce spending. If from excessive consumer demand then the government can introduce policies that promote saving over spending.
If it is caused by demographic factors, such as large family sizes and a lot of young people as a percentage of the population, then policies that encourage smaller families will be effective.
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