| Which of the following is/are the strategies to control inflation? |
| 1. Rationalization of Government support to farmers. |
| 2. Reduction of fiscal deficit. |
| 3. Maintaining prices through administered price mechanisms. |
| 4. Improving the efficiency of public programmes and breaking the wage-price spiral. |
| Select the correct answer using the codes given below: |
A) 1, 2 and 3 only
B) 2, 3 and 4 only
C) 1, 2 and 4 only
D) 1, 2, 3 and 4
Correct Answer: A
Solution :
[a] There are three main ways to carry out a contractionary policy. The first is to increase interest rates through the RBI. The second method is to increase reserve requirements on the amount of money banks are legally required to keep on hand to cover withdraws. The third method is to directly or indirectly reduce the money supply by enacting policies that encourage reduction of the money supply. All the three strategies given in the question come under one of the ways mentioned here.
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