Which of the following measures could be taken to check existing inflation in an economy ........

Finance (Phase -I & II) Inflation Trends

Which of the following measures could be taken to check existing inflation in an economy:-

The government may go for the import of goods which are in shortsupply— as a short-term measure.

As a long-term measure, governments go on to increase the production to matching the level of demand.

The governments may try to cool down the price by cutting down the production cost of the goods showing price rise with the help of tax breaks—cuts in the excise and custom duties.

All of the above

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Explanation:

The governments around the world distanced themselves from this debate and have been taking recourse to all possible options while controlling inflation. The governments resort to following options to check rising inflation:

As a supply side measure, the government may go for the import of goods which are in short supply— as a short-term measure (as happened in India in the case of ‘onion’7 and meeting the buffer stock norm of wheat). As a long-term measure, governments go on to increase the production to matching the level of demand. Storage, transportation, distribution, hoarding are the other aspects of price management of this category.

As a cost side measure, governments may try to cool down the price by cutting down the production cost of the goods showing price rise with the help of tax breaks—cuts in the excise and custom duties (as happened in June 2003 in India in the case of crude oil and steel8). This helps as a short-term measure. In the long-term, better production process, technological innovations, etc. are helpful. Increasing income of the people is the monetary measure to avoid the heat of such inflation.