Question

Explain five measures that the government may use to curb undesirable levels of inflation

Answer 1

1. Taxes should be increased to reduce disposable income/ lowering the consumer’s expenditure.
2. Restriction of imports by imposing heavy tariffs to make people switch their spending on imports to locally produced goods in order to curb imported inflation.
3. Price legislation. This is where the price is controlled as a temporary measure to keep them stable.
4. Use of monetary policies such as open market operations, raising liquidity ratio, imposing high interest rates, selective control etc to reduce money supply.
5. Use of wage policies (checking on trade union pressure) to avoid increase in wages.
6. Increase general production of goods/services to avoid shortages
7. Reduce public expenditure such as construction of roads/ infrastructure