Outline three measures that can be implemented to solve or reduce inflation?

Measures to reduce inflation

Measures to solve inflation can be either from the demand side or from the supply side. From the
demand side, there can be contractionary fiscal and monetary policies and from the supply side, the
solution can be in form of price controls, which are necessary for reducing or solving inflation.

Firstly, the Contractional fiscal policy this measure will require a reduction in government spending and
an increase in taxation. This is done through a surplus budget. An increase in taxation will lead to
reduced consumer spending and a fall in demand for goods and services. Simultaneously a fall in
government spending will lead to falling aggregate demand in the economy. This will have the effect of
reducing price levels and inflation.

Secondly, The Contractionary Monetary Policy the objective here is to reduce the money supply and
increase interest rates. Contractionary monetary policy can take the form of an increase in the reserve
requirement ratio, a bond sale to the public, or an increase in the discount rate. All of these measures
will have the effect of reducing the money supply in the economy which is needed for the solution of the
inflationary problem.

Lastly, Price Controls this measure can be done by the passage of legislation such as price controls
whereby prices cannot increase above a certain level. There can be price, particularly on rent where rent
cannot increase beyond a certain price thereby controlling prices of housing. There can also be
temporary controls on wage increases which can take the form of moral suasion where the government
tries to persuade people and trade unions which will lead to price increases. In addition, some
governments can subsidize goods and services to assist farmers so that they would not have to charge
high prices, which in turn can assist with imported inflation since local goods will be cheaper.