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Consider the following statements.
1. The long term measure is to cool down Inflation is to make money costlier.
2. The short term is to increase the Bank Rate or Repo Rate.
3. Other short term is measure is to increase production.
Which of these statements is/are correct?
- a)2 only
- b)3 Only
- c)1 Only
- d)1 and 3 Only
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements. 1. The long term measure is to coo...
- The governments may take recourse to tighter monetary policy to cool down either the demand-pull or the cost-push inflations.
- This is intended to cut down the money supply in the economy by siphoning out the extra money (as RBI increases the Cash Reserve Ratio of banks in India) from the economy and by making money costlier (as RBI increases the Bank Rate or Repo Rate in India) This is a short-term measure.
- In the long-run, the best way is to increase production with the help of the best production practices.
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Consider the following statements. 1. The long term measure is to coo...
Long-term and Short-term Measures to Cool Down Inflation
Long-term Measure: Making Money Costlier
One of the long-term measures to cool down inflation is to make money costlier. This means that the central bank can increase the interest rates at which it lends money to commercial banks. This, in turn, will make borrowing more expensive for commercial banks, which will lead to an increase in lending rates. This will discourage people from borrowing money and spending it on goods and services, which will reduce demand and help in cooling down inflation.
Short-term Measure 1: Increase Bank Rate or Repo Rate
Another short-term measure to control inflation is to increase the bank rate or repo rate. The bank rate is the rate at which the central bank lends money to commercial banks, while the repo rate is the rate at which commercial banks borrow money from the central bank. By increasing these rates, the central bank can reduce the money supply in the economy, which will help in controlling inflation.
Short-term Measure 2: Increase Production
Increasing production is another short-term measure to control inflation. When production increases, the supply of goods and services also increases, which can help in reducing prices. This can be done by providing incentives to businesses to increase production, such as tax breaks or subsidies. The government can also invest in infrastructure projects, which can create jobs and increase production.
Conclusion
In conclusion, both long-term and short-term measures are needed to control inflation. While the long-term measure is to make money costlier, the short-term measures include increasing the bank rate or repo rate and increasing production. These measures can help in reducing demand and increasing supply, which can help in cooling down inflation.
Long-term Measure: Making Money Costlier
One of the long-term measures to cool down inflation is to make money costlier. This means that the central bank can increase the interest rates at which it lends money to commercial banks. This, in turn, will make borrowing more expensive for commercial banks, which will lead to an increase in lending rates. This will discourage people from borrowing money and spending it on goods and services, which will reduce demand and help in cooling down inflation.
Short-term Measure 1: Increase Bank Rate or Repo Rate
Another short-term measure to control inflation is to increase the bank rate or repo rate. The bank rate is the rate at which the central bank lends money to commercial banks, while the repo rate is the rate at which commercial banks borrow money from the central bank. By increasing these rates, the central bank can reduce the money supply in the economy, which will help in controlling inflation.
Short-term Measure 2: Increase Production
Increasing production is another short-term measure to control inflation. When production increases, the supply of goods and services also increases, which can help in reducing prices. This can be done by providing incentives to businesses to increase production, such as tax breaks or subsidies. The government can also invest in infrastructure projects, which can create jobs and increase production.
Conclusion
In conclusion, both long-term and short-term measures are needed to control inflation. While the long-term measure is to make money costlier, the short-term measures include increasing the bank rate or repo rate and increasing production. These measures can help in reducing demand and increasing supply, which can help in cooling down inflation.
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Consider the following statements. 1. The long term measure is to cool down Inflation is to make money costlier.2. The short term is to increase the Bank Rate or Repo Rate.3. Other short term is measure is to increase production.Which of these statements is/are correct?a) 2 onlyb) 3 Onlyc) 1 Onlyd) 1 and 3 OnlyCorrect answer is option 'A'. Can you explain this answer?
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