Question

What measures of monetary policy are adopted during inflation ?

Answer 1

In the period of inflation, following measures of monetary policy can be adopted :

1. To arrest the increase in prices due to excess demand, Central Bank increases the bank rate, sells securities in an open market and raises the Cash Reserve Ratio.
2. Increases the selective credit limit.
3. Controls the Consumer Credit.
4. Demonetisation of currency can also be done.