Which of the following can be undertaken to control inflation?
-
- Control on public expenditure
- Control on hoarding and black-marketing
- Effective control on credit
- All of the above
Correct Answer: All of the above
Answer Explanation
Inflation, a sustained increase in the price level of goods and services, threatens economic stability and welfare. Let’s delve into the rationale behind each of these measures in option (d), “All of the above.” This option correctly identifies a comprehensive set of measures that can be undertaken to effectively control inflation.
a. Control on public expenditures:
Governments are able to influence inflation by managing their expenditures. When public spending is high, it will contribute to an increase in demand for goods and services. But when demand exceeds the economy’s supply capacity, demand-pull inflation can occur. Governments can moderate inflationary pressures by reducing excess demand by controlling public expenditure.
b. Control on hoarding and black-marketing:
Hoarding and black-marketing can artificially drive up prices and create shortages of goods. It is essential to regulate these practices to ensure supply chains remain stable and to prevent price manipulation. Authorities can mitigate supply-side shocks and alleviate inflationary pressures by preventing these disruptions.
c. Effective control on credit:
Central banks manage credit and money supply in a pivotal way to control inflation. As a result of central banks’ adjustment of key interest rates, such as policy rates or discount rates, borrowing costs are influenced. A rise in interest rates curbs excessive demand that leads to demand-pull inflation by tightening credit conditions and reducing borrowing and spending. Moreover, central banks can implement measures such as increasing reserve requirements for banks, further reducing credit availability.
Why the other options are not correct
a. Control on Public Expenditure:
Public expenditure control is an essential tool for controlling inflation, but it cannot address the complexity of inflation dynamics alone. There are a number of factors affecting inflation, including changes in production costs and consumer behavior. Controlling public expenditure alone may not fully address all aspects of inflation.
b. Control on Hoarding and black-marketing:
While controlling hoarding and black-marketing is important, it does not encompass all inflation control strategies. A comprehensive approach to inflation must include factors on both the demand-side and supply-side, as well as the role of monetary policy in influencing overall economic conditions.
c. Effective control on credit:
Effective credit control is undoubtedly an essential strategy for managing inflation. However, it is just one facet of a broader inflation control framework. Inflationary pressures are also significantly influenced by fiscal policy, structural reforms, and external trade dynamics.
Conclusion
The origins and consequences of inflation require a multifaceted strategy to control. In order to manage demand-pull and cost-push inflation, policymakers need to control public expenditure, regulate hoarding and black-marketing, and maintain effective credit controls.
Taking into account a variety of economic factors maintains inflation at manageable levels, contributing to stable prices, sustainable economic growth, and improved living standards.
Which of the following is an effect of inflation?
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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