How can government control inflation?
Though inflation may help the growth and development of a country’s economy, many evils associated with it cannot be minimized and any Government acknowledging responsibility to its people has the inescapable duty of keeping it under control, at least of minimizing its harmful tendencies.
The government can do the following to control inflation:
- Additional taxes: In a country where inflation prevails in an acute form, the government may combat it by reducing the purchasing power of people and this can be effectively done by imposing additional taxes on varied sources of people’s income.
- Raise public loans: The Government may also raise public loans and thereby put some restriction on their purchasing power. Higher interest rates would incentivize people to deposit more money in banks and other financial institutions.
- Control over production: It may also be sometimes necessary for the government to impose and tighten the control on the production and distribution of many consumer goods of everyday use.
- Raising Production: The only way in which it can be put under check is by raising production of all consumer goods and creating conditions favorable for investments leading to an increased supply of commodities.
