Monetary Economics — Economics STD 12 — Question

Measures to Control Inflation:
Keynes and Milton Friedman together suggested three measures to prevent and control of inflation.

1. Monetary measures
2. Fiscal measures (J.M. Keynes) and
3. Other measures.

1. Monetary Measures:

1. These measures are adopted by the Central Bank of the country.
2. They are
   • Increase in Bankrate
   • Sale of Government Securities in the Open Market
   • Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
   • Consumer Credit Control and
   • Higher margin requirements
   • Higher Repo Rate and Reverse Repo Rate.

2. Fiscal Measures:

1. Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
2. The major anti – inflationary fiscal measures are the following:
   Reduction of Government Expenditure and Public Borrowing and Enhancing taxation.

3. Other Measures:
These measures can be divided broadly into short – term and long – term measures.
(a) Short – term measures can be in regard to public distribution of scarce essential commodities through fair price shops (Rationing). In India whenever shortage of basic goods has been felt, the government has resorted to import so that inflation may not get triggered.
(b) Long – term measures will require accelerating economic growth especially of the wage goods which have a direct bearing on the general price and the cost of living. Some restrictions on present consumption may help in improving saving and investment which may be necessary for accelerating the rate of economic growth in the long run.