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The Government's Control of the Rate of Inflation within an Economy - Coursework Example

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This paper describes the government's control of the rate of inflation within an economy. This paper outlines balancing the state budget, tightening money, voluntary control, mandatory control, agricultural price support, transportation regulation, import restriction, petrol and gas control, environmental and safety regulations. …
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The Governments Control of the Rate of Inflation within an Economy
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Download file to see previous pages Retail price index (RPI) inflation rose to 4.1 percent in January, up from four percent in December. Although rising utility bills and an increase in producer price index (PPI) inflation will keep upward pressure on inflation, the drop in demand for consumer products - such as clothing, footwear, and electricals - seen in January could offset the higher food and fuel prices, analysts believe (Office of National Statistics 2008).
Balancing the state budget is viewed by economists as a way to help ease inflation. The more efficient way is to keep the state budget at the surplus and to hold expenditures at a low level. The budget can also be balanced by cutting taxes and then trimming expenditures enough to make outgo match income.
Tight money is probably the anti-inflationary weapon that is most widely used by capitalist economies today all around the world. By tight money it is meant holding down the ability of banks to make additional loans so that household or business borrowers find it much more difficult--and much, much more expensive--to take out a loan.
Tight money certainly slows down the pace of economic buying and producing. To a lesser extent, it also slows down inflation, although there is no iron law that says prices must fall just because less is being produced or bought. Mainly the result of tight money is to intensify competition in a sluggish business setting, and that may bring prices down or stop them from going up: the bargains in airfares may be an example of this.
The difficulties with tight money are is that the impact of credit stringency is very uneven--dealing serious blows, even death blows, to small business; leaving the big business, with its powerful credit sources, relatively unscathed. Another problem is maintaining a steady monetary policy against the immense counterpressures that credit stringency brings.  ...Download file to see next pagesRead More
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