Which of the following is not a method of controlling inflation?a)Sur...
Generally, repo rate is required to be increased for the purpose of controlling inflation.
Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
Which of the following is not a method of controlling inflation?a)Sur...
Introduction:
Inflation refers to a sustained increase in the general price level of goods and services in an economy over a period of time. It erodes the purchasing power of money and can have detrimental effects on the economy. To control inflation, governments and central banks employ various measures. However, not all measures are equally effective in controlling inflation.
Main Body:
Surplus Budgeting:
- Surplus budgeting refers to a situation where government revenues exceed its expenditures.
- When the government runs a surplus budget, it reduces the demand for goods and services in the economy.
- This reduction in demand can help control inflation by reducing the pressure on prices.
Reduction in public expenditure:
- Public expenditure refers to the government's spending on goods, services, and infrastructure.
- When the government reduces its expenditure, it decreases the overall demand in the economy.
- This reduction in demand can help control inflation by reducing the pressure on prices.
Reduced repo rate:
- The repo rate is the rate at which the central bank lends money to commercial banks.
- When the central bank reduces the repo rate, it makes borrowing cheaper for commercial banks.
- This reduction in borrowing costs encourages businesses and individuals to borrow and spend more, stimulating demand in the economy.
- While this measure can help boost economic growth, it is not directly aimed at controlling inflation.
Increased taxation:
- Increasing taxation means raising taxes on individuals and businesses.
- Higher taxes reduce disposable income and decrease the purchasing power of consumers.
- This reduction in purchasing power can help control inflation by reducing demand and putting downward pressure on prices.
Conclusion:
Out of the given options, the method that is not a direct method of controlling inflation is the reduced repo rate. While reducing the repo rate can have implications for inflation indirectly, its primary objective is to stimulate economic growth rather than directly control inflation.