Remedies/Control of Inflation
The steps taken to control inflation can be classified into followings:
1. Monetary Measures
2. Fiscal Measures
3. Other Measures
1. Monetary Measures
A) Supply of Money
The control over money supply is an effective method to control inflation. If there is inflation it can be control by reducing supply of money by using the tools of monetary policy.
B) Credit Control
Issuance of loans by the banks increases money supply in the country which results in inflation. Central bank by imposing restrictions on the loans can control the supply of money which helps to control the inflation.
C) Saving Habits
If the government increases interest rate on deposits/saving schemes it will induce people to invest in such schemes. As a result circulation of money reduces which help to control inflation.
D) Monetary Reforms
In order to control inflation the government can implement monetary reforms. Under this method government can exchange old notes for new notes and large amount of notes can be blocked. Such blocked money can be reissued after the certain time period. Such system was adopted in Poland, Norway and Denmark.
2. Fiscal Measures
A) Increase in Taxes
The increase in taxation reduces the purchasing power of the people. The money moves from general public to the government. By this supply of money is reduced in the economy which results in controlling prices.
B) Controlling Exports
By controlling the level of exports the inflation can be controlled. The products which are short in the domestic market should not be exported to other countries. If such products are exported their prices will rise in the local market due to shortage.
C) Decrease in Import Duty
If the duty on imported goods is reduced it will reduce the cost of local sellers and enable them to sell their products in the local market at lower prices.
3. Other Measures
Price Control
It is very effective method to control the prices. In this method the government appoints a price control committee to maintain stable price level in the country. Under this method the sellers are not allowed to sell their products at high prices.
