Government strategies to control inflation

Custom Search Why and how does government attempt to control inflation? For hundreds of years before the 20th century the value of the pound had remained almost the same.

Government strategies to control inflation

Some of the important measures to control inflation are as follows: Inflation is caused by the failure of aggregate supply to equal the increase in aggregate demand.

Inflation can, therefore, be controlled by increasing the supplies of goods and services and reducing money incomes in order to control aggregate demand.

The various methods are usually grouped under three heads: Monetary measures aim at reducing money incomes. One of the important monetary measures is monetary policy.

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The central bank of the country adopts a number of methods to control the quantity and quality of credit. For this purpose, it raises the bank rates, sells securities in the open market, raises the reserve ratio, and adopts a number of selective credit control measures, such as raising margin requirements and regulating consumer credit.

Monetary policy may not be effective in controlling inflation, if inflation is due to cost-push factors.


Monetary policy can only be helpful in controlling inflation due to demand-pull factors. However, one of the monetary measures is to demonetise currency of higher denominations.

Such a measures is usually adopted when there is abundance of black money in the country. The most extreme monetary measure is the issue of new currency in place of the old currency.

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Under this system, one new note is exchanged for a number of notes of the old currency. The value of bank deposits is also fixed accordingly.

Rousseau: Social Contract: Book III Inflation is an economic condition characterized by a general rise in the prices. Thus, controlling Inflation is important as unrestrained increase of the prices may culminate in Hyperinflation, and an excessive fall in the prices may lead to Deflation.
BREAKING DOWN 'Hyperinflation' Rising Medicaid spending on prescriptiondrugs has prompted many states to look for new ways to control such costs.

Such a measure is adopted when there is an excessive issue of notes and there is hyperinflation in the country. It is a very effective measure.

But is inequitable for its hurts the small depositors the most. Monetary policy alone is incapable of controlling inflation. It should, therefore, be supplemented by fiscal measures. Fiscal measures are highly effective for controlling government expenditure, personal consumption expenditure, and private and public investment.

The principal fiscal measures are the following: The government should reduce unnecessary expenditure on non-development activities in order to curb inflation.

What is 'Hyperinflation'

This will also put a check on private expenditure which is dependent upon government demand for goods and services. But it is not easy to cut government expenditure. Though this measure is always welcome but it becomes difficult to distinguish between essential and non-essential expenditure.

Therefore, this measure should be supplemented by taxation. To cut personal consumption expenditure, the rates of personal, corporate and commodity taxes should be raised and even new taxes should be levied, but the rates of taxes should not be so high as to discourage saving, investment and production.

Rather, the tax system should provide larger incentives to those who save, invest and produce more.

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Further, to bring more revenue into the tax-net, the government should penalise the tax evaders by imposing heavy fines. Such measures are bound to be effective in controlling inflation. To increase the supply of goods within the country, the government should reduce import duties and increase export duties.

Another measure is to increase savings on the part of the people.

CPI Home. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. The Inflation Monster Cometh, Prepare Yourself by Tom Chatham. Let’s just take a quick review of the situation as we know it. The real inflation rate is over 10% and the real u6 unemployment rate is over 22% according to General Mills recently reported that their input costs rose from 10% to 11% year over year. The historical evidences have shown that price control alone cannot control inflation, but only reduces the extent of inflation. For example, at the time of wars, the government of different countries imposed price controls to prevent any further rise in the prices.

This will tend to reduce disposable income with the people, and hence personal consumption expenditure.Why and how does government attempt to control inflation?

For hundreds of years before the 20th century the value of the pound had remained almost the same. Canadian government Executive is the source for networking, innovation and thought leadership, serving senior public sector executives in federal, provincial and municipal departments across Canada.

May 18,  · States, Not Just Feds, Struggle to Keep Gas Tax Revenue Flowing According to a Governing analysis, two-thirds of states' fuel taxes have failed to keep up with inflation. There are many methods used by the government to control inflation; one popular method is through a contractionary monetary policy.

Government strategies to control inflation

content for financial advisors around investment strategies. A government bond is a debt security issued by a government to support government spending, most often issued in the country's domestic currency.

The socialist dystopia of Venezuela is seeing inflation at such high rates that the starving civilians have resorted to looting the few stores left and pillaging for scraps of food. The % inflation rate and socialist policies are destroying what was once South America's wealthiest nation.

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