These are ways of controlling inflation in the medium term; i.A reduction in company taxes to encourage greater investment If nominal wages increase by 5%, while labor productivity has only increased by 2%, inflation will be around 3%. Price control and rationing is another measure of direct control to check inflation. You're now subscribed to receive email updates! Like monetary measures, fiscal measures alone cannot help in controlling inflation. He has over twenty years experience as Head of Economics at leading schools. They are the maximum prices fixed by law and anybody charging more than these prices is punished by law. should be provided to different consumer goods sectors to increase production. Industries faced with rising production costs push prices up. The central bank of the country adopts a number of methods to control the quantity and quality of credit. It means collecting more in revenues and spending less. Though this measure is always welcome but it becomes difficult to distinguish between essential and non-essential expenditure. Using price controls to stop or control inflation means that shortages are created. 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. However, one of the monetary measures is to demonetise currency of higher denominations.
This will also put a check on private expenditure which is dependent upon government demand for goods and services. Such measures are bound to be effective in controlling inflation. Keynes, therefore, advocated compulsory savings or what he called ‘deferred payment’ where the saver gets his money back after some years. Keynes did not favour rationing for it “involves a great deal of waste, both of resources and of employment.” From the various monetary, fiscal and other measures discussed above, it becomes clear that to control inflation, the government should adopt all measures simultaneously. Monetary policy alone is incapable of controlling inflation. Instead, the government should borrow more to reduce money supply with the public. Under this system, one new note is exchanged for a number of notes of the old currency. It will control wages and at the same time increase productivity, and hence raise production of goods in the economy.
Fiscal measures are highly effective for controlling government expenditure, personal consumption expenditure, and private and public investment. To control this, the government should freeze wages, incomes, profits, dividends, bonus, etc.
Another important measure is to adopt a rational wage and income policy.
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can inflation be controlled by increasing productivity