Governments can use wage and price controls to fight inflation, but that can cause recession and job losses. Governments can also employ a contractionary monetary policy to fight inflation by reducing the money supply within an economy via decreased bond prices and increased interest rates.
How does the South African government manage inflation?
South Africa formally introduced inflation targeting in February 2000. This is a framework in which the central bank uses monetary policy tools, especially the control of short-term interest rates, to keep inflation in line with a given target. South Africa’s inflation target range is 3−6%.
How do you solve for inflation rate?
Utilize inflation rate formula
Subtract the past date CPI from the current date CPI and divide your answer by the past date CPI. Multiply the results by 100. Your answer is the inflation rate as a percentage.
What is the government’s role in inflation?
When the government expands the money supply to finance its debts or to create economic prosperity, the result is higher prices. People have more dollars but the dollar loses its purchasing power. Inflation reduces the value of the currency and the amount of that reduction is used by the government to pay its debts.
Which of the following measures can be used to reduce inflation?
The measure adopted to to reduce inflation is the following; Reduction in Repo Rate. Repo rate is the rate at which the central bank lends money to the commercial banks in case of shortfall of funds or assets etc. The central bank reduces money supply through reduction in repo rate in order to control inflation.
How do governments control inflation?
The government can increase taxes (such as income tax and VAT) and cut spending. This improves the government’s budget situation and helps to reduce demand in the economy. Both these policies reduce inflation by reducing the growth of aggregate demand.
How do you mitigate inflation risk?
The only way to eliminate inflationary risk is to accept lower returns. Therefore, short-term inflation hedging is only appropriate for retirees, fixed income investors, and others who would experience a decline in living standards during inflationary periods.
What are the causes of inflation How can it be controlled?
Inflation & ITS Control Measures
- Inflation may occur sometimes due to excessive bank credit or currency depreciation.
- It may be caused due to increase in demand in relation to supply of all types goods and services due to a rapid increase in population.
Which measures are followed by the government for handling inflation Mcq?
Some of the steps the government may take to check inflation are as follows,
- Increase the bank rate. …
- Employ other such open market operations to reduce the level of liquidity in the economy.
- The RBI also changes its Cash Reserve Ratio, as a tool to control the amount of money and credit in the market.