Measures to Curb Inflation
a) Contractionary Monetary Policy
• Increase bank rate (interest rate)
• Sell government securities in the open market (means borrowing money)
• Increase cash reserve ratio (so more money with central bank to inject money into the economy)
• Increase special deposit
b) Contractionary Fiscal Policy
• Reducing government expenditure
• Increasing personal income tax
• Increasing company tax
c) Incomes Policy
• Price and wage control by setting
i. Some form of norm for wage settlement. (wage floor/ceiling)
ii. Fine or tax on firms breaking the price or wage limits.
• This involves the adjustment of wage rates and interest rates according to the level of inflation rate. (so that real wages can catch-up with the inflation rate)
e) Compulsory Savings
• The amount of spending by the public can be reduced by raising the Central Provident Fund (CPF) contribution. (so people will save more than they spend)
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