The refund of public debt by the government certainly adds to the purchasing power thereby increasing the 6.

Further, to bring more revenue into the tax-net, the government should penalise the tax evaders by imposing heavy fines. When the goods produced in the country are exported, the supply of goods for domestic consumption will go down. Types of inflation; Effects; Causes; Measures to control Inflation; Conclusion; Types of inflation. But it is not easy to cut government expenditure.

This will tend to reduce disposable income with the people, and hence personal consumption expenditure. This in turn increases the 2. Inflation can, therefore, be controlled by increasing the supplies of goods and services and reducing money incomes in order to control aggregate demand. But such a drastic measure can only be adopted for a short period as it is likely to antagonise both workers and industrialists. It should, therefore, be … Sometimes, the traders also resort to large-scale hoarding for exploiting the public and making high profits. Inflation may result due to variety of causes acting singly or in combination. The value of bank deposits is also fixed accordingly. It is the result of wage-cost, fuel-cost and other material costs. The ever increasing population adds to the total demand for commodities causing scarcity and price rise.7.

Measures to check inflation would include steps to control the growth of demand and increase in agricultural and industrial supply so that balance between demand and supply is maintained. Any surplus demand leads to a rise in prices and money wages. To increase the supply of goods within the country, the government should reduce import duties and increase export duties.

The government would adopt various measures to mop up the savings of the people and thereby try to reduce current demand for goods. To control this, the government should freeze wages, incomes, profits, dividends, bonus, etc. Rationalisation increases productivity and production of industries through the use of brain, brawn and bullion, (v) All possible help in the form of latest technology, raw materials, financial help, subsidies, etc. In order to reduce the disposable income with the people, the tax rates could be enhanced on a selective basis or new taxes could be introduced by which a sizeable portion of the purchasing power of the community could be reduced.

The most extreme monetary measure is the issue of new currency in place of the old currency. Under hyperinflation, there is a wage-price spiral. Though this measure is always welcome but it becomes difficult to distinguish between essential and non-essential expenditure. Here in this article, I focused on the causes, effects and control measures of inflation. Inflation in an economy can be caused by excess demand or by reduction in the supply of The following figure gives a list of factors leading to inflation in India:The following factors can be stated for the causes for inflation:1.
Price control and rationing of essential commodities would be resorted to reduce evils of black-marketing, hoarding and profiteering and also to ensure equitable distribution.

Monetary policy can only be helpful in controlling inflation due to demand-pull factors. But it is very inconvenient for consumers because it leads to queues, artificial shortages, corruption and black marketing. Monetary policy is one of the most commonly used measures taken by the government to control inflation. The mounting public expenditure is a basic reason for the excess demand in an economy.

Industries faced with rising production costs push prices up.

In an economy, the total use of money = the money supply by the …
It should, therefore, be supplemented by fiscal measures.

There are many ways of controlling inflation in an economy − Monetary Measure. Fiscal Measures 3. Wages, salaries and profit margins could be controlled. Keynes, therefore, advocated compulsory savings or what he called ‘deferred payment’ where the saver gets his money back after some years. However, with stringent penal measures the government can make effective policies in controlling inflation of a country. Like monetary measures, fiscal measures alone cannot help in controlling inflation. Measures to Control Inflation We have studied above that inflation is caused by the failure of aggregate supply to equal the increase in aggregate demand. Under this system, one new note is exchanged for a number of notes of the old currency. Therefore, this measure should be supplemented by taxation. Some of the important measures to control inflation are as follows: 1. Causes of Inflation: Inflation is mainly caused by excess demand/ or decline in aggregate supply or output. The methods of controlling inflation and mitigating its severity can be classified into the following broad categories of instruments, commonly used in order to control inflation, in a modern economy:Since too much money will be the fundamental problem in the economy, the central banking authorities use various weapons available in its armory to combat inflation through reduction of money supply and credit.

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