CONTACT US

084594-00000

About Us  :  Online Enquiry

Download

POLICY MEASURES TO CONTROL INFLATION

POLICY MEASURES TO CONTROL INFLATION

  • The issue of inflation is addressed from both demand and supply sides. Demand management is achieved by measures such as postponing public expenditure, mopping up excess liquidity either through taxes or savings schemes and restrictions on ad hoc treasury bills.
  • While such measures help contain the money supply, there is the danger that these will contract the economy and lead to an increase in unemployment.  POLICY MEASURES TO CONTROL INFLATION
  • RBI assists in controlling inflation through monetary measures such as quantitative and selective credit controls and by manipulating the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).
  • Recently, RBI has decided to make the repo rate the sole policy rate and has been manipulating repo/reverse repo rates to control money supply and thereby inflation.
  • On the supply side, the mechanism of Public Distribution System (PDS) ensures availability of essential commodities for the vulnerable sections of society.
  • This helps to maintain price levels. Coupled with this is the open market sale of rice and wheat resorted to by FCI from its buffer stock in times of price rise.

PHILIPS CURVE  [POLICY MEASURES TO CONTROL INFLATION] 

  • Philips Curve describes the relationship between inflation and unemployment in an economy. You already know that the Inflation is defined by increase in the average price level of goods and services over time. When there is inflation, value of money falls. POLICY MEASURES TO CONTROL INFLATION
  • A low inflation  rate indicates that average price of goods would not rise as high. Unemployment exists when someone is actively seeking job, but unable to find any, despite his/her willingness to accept the going market wage rate.
  • New Zealand-born economist A.W Philips first put this theory forward in 1958 after gathering the data of unemployment and changes in wage levels in the UK from 1861 to 1957.
  • He observed that one stable curve represents the trade-off between inflation and unemployment and they are inversely/negatively related. In other words, if unemployment decreases, inflation will increase, and vice versa.
  • POLICY MEASURES TO CONTROL INFLATION

 ALSO READ : https://www.brainyias.com/monetary-policy/

Indian Economy

Send this to a friend