Methods to Control Inflation: [Essay Example], 705 words GradesFixer
close
This essay has been submitted by a student. This is not an example of the work written by professional essay writers.

Methods to Control Inflation

downloadDownload printPrint

Pssst… we can write an original essay just for you.

Any subject. Any type of essay.

We’ll even meet a 3-hour deadline.

Get your price

121 writers online

blank-ico
Download PDF

Methods to Control Inflation

MONETARY MEASURES

A moderate rate of inflation is sometimes considered to be essential but it varies from country to country and from time to time but as the rate of inflation crosses the desirable limit, certain measures are undertaken to prevent increasing undesirable inflation. Countries use monetary measures to keep the inflation under control.

Pssst... we can write an original essay just for you

Any subject. Any type of essay.

We’ll even meet a 3-hour deadline.

121 writers online

The monetary policy is defined as the plan of action undertaken a monetary authority especially the central bank of a country. The purpose of monetary policy is to regulate as well as control the demand and supply of money to public. The goal of monetary policy is to set the inflation rate and interest rate at such a level that the currency of the country remains stable and trust in the currency is ensured.

Monetary Methods of controlling Inflation

  • Bank Rate Policy: The bank rate policy also known as Central Bank Rediscount Rate is an important tool for controlling inflation. It is the rate at which the central bank buys or discounts the provided bills of exchange presented by commercial banks to build their reserves. The bank rate policy works as a monetary measure in two ways.
  • Interest rate increase: In the time of inflation, the central bank of a country increases the rates of interest due to which the lending costs rises, as a resultant, commercial banks reduce their borrowing from central bank. With less rate of borrowing, the money flow from commercial banks to public reduces and this is how the central bank of a country controls the extent of inflation.
  • Less Business Borrowings: When the central bank of a country raises the interest rate for commercial banks, the commercial banks then ahead raise the interest rate for individual and Corporation/Company borrowings which results in fewer borrowings from corporate sector. Increase in interest is usually a sign for corporate sector to pull up their socks because it would be difficult for them in the future. With this decrease in borrowings, inflation is also controlled.
  • Cash Reserve Ratio: Also known as variable reserve ratio is a specific proportion of deposits that is mandatory for all commercial banks to maintain in form of cash reserves in central bank. The CRR (Cash Reserve Ratio) is determined and decided by central bank of a country to control the supply of money. With the increase in the CRR, the capacity of borrowing of commercial banks from central bank decreases and also does the power of public to lend money from commercial banks. With this the price of goods in the market can be controlled; to which extent they would increase or decrease. As a result inflation can be controlled.
  • Government Bonds & Securities: The sale and purchase of bonds and securities of government by the central bank of a country characterizes the open market operation of an economy. When the central bank of a country buys government bonds and securities it further sells them to public with the help of commercial banks. When the commercial banks buy these bonds and securities, they transfer an adequate amount of credit to central bank, which results in decrease in rate of money production or credit production by commercial banks. This reduces the flow of money to public by commercial banks and due to this inflation can be controlled.

FISCAL MEASURES

The fiscal measures to control inflation are comprised of government spending or expenditures, public borrowings and taxation. The people who study fiscal measures are known as fiscals and they assert that inflation is caused due to an excess of aggregate demand and aggregate supply.

An economy’s level of stability, employment rate of a country and an individual’s earning are deeply affected by the relationship of government’s spending and its tax rates implemented. A slight change in between these two can either cause inflation or deflation. These slight changes in tax rate and governments spending to control employment rate and demand for products are known as Fiscal policy.

Fiscal Methods of controlling Inflation

  • By reducing publics volume of spending.
  • By more internal borrowing by public authorities.
  • By increasing taxes.
  • By decreasing governments expenditure.
  • By introducing more taxes and bringing more people in its coverage.
  • By inducing wage earners to buy government bonds and securities.

infoRemember: This is just a sample from a fellow student.

Your time is important. Let us write you an essay from scratch

100% plagiarism-free

Sources and citations are provided

Find Free Essays

We provide you with original essay samples, perfect formatting and styling

Cite this Essay

To export a reference to this article please select a referencing style below:

Methods to Control Inflation. (2018, October 26). GradesFixer. Retrieved April 13, 2021, from https://gradesfixer.com/free-essay-examples/methods-to-control-inflation/
“Methods to Control Inflation.” GradesFixer, 26 Oct. 2018, gradesfixer.com/free-essay-examples/methods-to-control-inflation/
Methods to Control Inflation. [online]. Available at: <https://gradesfixer.com/free-essay-examples/methods-to-control-inflation/> [Accessed 13 Apr. 2021].
Methods to Control Inflation [Internet]. GradesFixer. 2018 Oct 26 [cited 2021 Apr 13]. Available from: https://gradesfixer.com/free-essay-examples/methods-to-control-inflation/
copy to clipboard
close

Sorry, copying is not allowed on our website. If you’d like this or any other sample, we’ll happily email it to you.

    By clicking “Send”, you agree to our Terms of service and Privacy statement. We will occasionally send you account related emails.

    close

    Attention! this essay is not unique. You can get 100% plagiarism FREE essay in 30sec

    Recieve 100% plagiarism-Free paper just for 4.99$ on email
    get unique paper
    *Public papers are open and may contain not unique content
    download public sample
    close

    Sorry, we cannot unicalize this essay. You can order Unique paper and our professionals Rewrite it for you

    close

    Thanks!

    Your essay sample has been sent.

    Want us to write one just for you? We can custom edit this essay into an original, 100% plagiarism free essay.

    thanks-icon Order now
    boy

    Hi there!

    Are you interested in getting a customized paper?

    Check it out!
    Having trouble finding the perfect essay? We’ve got you covered. Hire a writer

    GradesFixer.com uses cookies. By continuing we’ll assume you board with our cookie policy.

    exit-popup-close

    Haven't found the right essay?

    Get an expert to write you the one you need!

    exit-popup-print

    Professional writers and researchers

    exit-popup-quotes

    Sources and citation are provided

    exit-popup-clock

    3 hour delivery

    exit-popup-persone