Which reference to inflation in India, which of the following statements is correct?a)Controlling the inflation in India is the responsibility of the Government of India onlyb)The Reserve Bank of India has no role in controlling the inflationc)Decreased money circulation helps in controlling the inflationd)Increased money circulation helps in controlling the inflationCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

Methods to control money inflation-1.monetry policy.  2.control of money supply. 3.supply side policy. 4.Fiscal policy . 5.wage control

Answer

Ans_C.. by decreasing money circulation will. have impact on mummy supply eventually on purchasing power and excess demand will reduce..

Answer

RBI and government both play a role in controlling the inflation, often termed as "inflation targeting" by the RBI. Hence, a and b are incorrect. Increased money circulation leads to increased inflation as demand increases. RBI increases bank rates and SLR etc. to reduce money supply in the market which tames demand and hence, inflation.

Answer

Introduction:
Inflation refers to the general increase in prices of goods and services in an economy over a period of time. It erodes the purchasing power of money and reduces the standard of living. Controlling inflation is crucial for maintaining stability and promoting economic growth. In the context of India, there is a shared responsibility between the Government of India and the Reserve Bank of India (RBI) in controlling inflation.

Explanation:
1. Role of Government:
a) The Government of India plays a significant role in controlling inflation through fiscal policies. It has various tools at its disposal, such as taxation, government expenditure, subsidies, and price controls, to influence demand and supply factors in the economy. By managing these factors effectively, the government can help control inflation.

2. Role of Reserve Bank of India (RBI):
b) The Reserve Bank of India, as the central bank of the country, also has a crucial role in controlling inflation. It primarily uses monetary policy tools to regulate the money supply and manage inflation. The RBI controls key interest rates such as the repo rate, reverse repo rate, and liquidity ratios, which influence borrowing costs and liquidity in the economy. By adjusting these rates, the RBI can influence the credit availability and spending patterns of individuals and businesses, thereby impacting inflation.

3. Decreased money circulation and inflation:
c) Decreased money circulation can help in controlling inflation. When the money supply in the economy is reduced, it leads to a decrease in aggregate demand. This decrease in demand can help in curbing inflationary pressures as there is less money chasing the same amount of goods and services. The government and the RBI can employ various measures such as reducing government expenditure, increasing taxes, or tightening monetary policy to reduce money circulation and control inflation.

4. Increased money circulation and inflation:
d) Increased money circulation, on the other hand, can fuel inflationary pressures. When there is excess money supply in the economy, individuals and businesses have more purchasing power, which leads to increased demand for goods and services. This increased demand can push up prices, causing inflation. However, it is important to note that excessive money circulation alone may not always result in inflation if the supply of goods and services can keep up with the increased demand.

Conclusion:
In conclusion, while controlling inflation is the responsibility of both the Government of India and the Reserve Bank of India, decreased money circulation can help in curbing inflationary pressures. By employing fiscal and monetary policy tools, the government and the RBI can effectively manage inflation and maintain price stability in the economy.

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