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(a) Distinguish between qualitative and quantitative measures of credit control policy of the central bank.

(b) What are the components of money supply? Explain three causes of inflation. State one fiscal measure to control inflation.

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(a)

 

Quantitative measureQualitative measure
1. These are influence the total credit Without distinguish between essential and non-essential uses of credit.These are discriminatory in nature in the sense that it distinguish between essential and non-essential uses of credit.
2. These are indirect and impersonal.These are direct.
3. They affect lenders.They affect both lenders and borrowers
4. Ex. (i) Bank Rate
(ii) Cash Reserve Ratio.
Ex. (i) Margin Requirement
(ii) Rationing of Credit.

(b) Components of money supply are: M1 M2, M3 and M

M1 = C + DD + OD. Here is currency held by public, DD is demand deposits in banks and OD is other deposits in RBI. 

M2 = M1 + Post office Deposits 

M3 = M1 + Net Time Deposits 

M4 = M1 + Total Deposits with Post offices. 

Three causes of inflation are: 

1. Increase in Public Expenditure: With a rise in national income and also rapid growth of population an increase in public expenditure is unavoidable. Government spends on maintenance of law and order and defence due to expenditure on these activities, it results in price rise.

2. Erratic Agricultural Growth: The Indian agriculture largely depends on mansoons and thus crop failures due to drought have been regular feature of agriculture in this country. In the years of scarcity of food grains nbt only price of food articles increases but the general price level also rises. 

3. Upward revision of Administered Prices: There are a number of important commodities for which price level is administered by the government. The government keeps on raising prices from time to time in order to cover the losses in the public sector which often arise due to inefficiency. 

One fiscal measure to control inflation is: 

(i) Increasing taxes: To reduce purchasing power with the public, rates of old taxes should be raised and new taxes should be imposed on public.

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