Question

Some of the measures suggested to curtail inflation are

i. Restricting public expenditure

ii. Mopping up increased liquidity through taxation or savings

iii. Strengthening public distribution system

Which of the above statements are correct ? 

1. i and iii
2. ii and iii
3. i and ii
4. i, ii and iii 

Answer 1

Correct Answer - Option 3 : i and ii

The correct is i and ii.

• Inflation means the rise in prices of goods and services. 
• It means a decline in the purchasing power of a given currency over a period of time.
• When the general price increases, each unit of a commodity that a currency can buy decreases.
• It reduces the purchasing power of money.
• Government can control inflation by reducing the money supply in the market.
• The money in the hands of the people gets reduced ultimately decreasing the public expenditure.
• Liquidity means how fast one can get their money in the form of cash.
• Increasing the rate of taxation and savings reduces the spendable funds in the hands of the consumers thus controlling inflation.