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Explain the various measures to control inflation.

Explain the various measures to control inflation.

Answers

Simon
• Increasing banking rate. An increase in bank rate leads to an increase in the interest rate charged by commercial banks which in turn discourages borrowing by businessmen and consumers.
• Sale of government securities. By selling government securities in the open market, the central bank directly reduces the cash reserves of the commercial banks because the central bank must be paid from the reserves. The fall in the cash reserves compels the banks to reduce their lending activities. This will reduce the money supply and hence the inflationary pressures in the economy.
• Higher reserve ratio. An increase in the minimum reserve ratio means that the member banks are required to keep larger reserves with the central bank this reduces the deposits of the banks and thus limits their power to create credit restrictions on credit expansion will control inflation.
• Selective credit control. The purpose of selective credit control measures is to influence specific type of credit while leaving other types of credit unaffected.
skilled writter answered the question on May 1, 2018 at 16:22

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