Glamor Economics

Chapter 168

Chapter 21 Section 4 Anti-Inflation and Anti-Austerity - Stable Currency

It is necessary to prevent both inflation and austerity, so as to avoid the ups and downs of the economy from causing turmoil to the country.We need to control inflation and stabilize price level changes at a reasonable level.

Inflation can be managed through the following means:
1. Moderately tight monetary policy.Implement a moderately tight monetary policy, control money supply, and maintain an appropriate credit scale. The central bank uses various monetary policy tools to flexibly and effectively regulate the total amount of money credit, and control the money supply to a level that is compatible with the objective demand. superior.

2. Moderately tight fiscal policy.Keynesians focus on reducing demand generally through fiscal means such as raising taxes or lowering government spending.In terms of fiscal policy, it is mainly to vigorously reduce fiscal expenditure, strive to increase fiscal revenue, maintain balance between revenue and expenditure, and avoid deficit finance.Control the scale of investment in fixed assets and control the excessive growth of consumption funds, in order to achieve the purpose of controlling the total demand of society.

3. Increase the effective supply of commodities and adjust the economic structure.Reduce costs, reduce consumption, and improve economic efficiency.Increase the ratio of input to output, adjust the industrial and product structure, and support the production of goods in short supply.

4. Directly control wages and prices.Economists generally view price controls as a bad practice because they distort the operation of the economy by fueling shortages and lowering the quality of production.However, it may be worth the price in order to curb destructive inflation.In the United States in the early 20s, the Nixon administration experimented with direct controls on wages and prices.

For deflation, the following means can be used to control:

1. Loose monetary policy.Adopting loose monetary policy and lowering interest rates can increase the amount of money in circulation, thereby stimulating aggregate demand.In order to prevent further economic decline, the Federal Reserve lowered the interest rate from 2008% to 12-16% on December 0, 0.25.The rate cut was greater than the [-]% expected by many analysts, and the federal funds rate fell to an all-time low.

2. Loose fiscal policy.Expansion of fiscal expenditure can directly increase aggregate demand, and can also drive the increase of private investment through the "multiplier effect" of investment.

3. Adjust the economic structure.For deflation caused by the absolute excess of products in certain industries or a certain level of commodity production, structural adjustments are generally adopted, that is, to reduce the output of excess sectors or industries and encourage the development of emerging sectors or industries.

4. Increase people's confidence.The government uses various propaganda methods to increase the public's confidence in the future economic development trend."Confidence is more important than gold" in deflationary times.

5. Improve social security.Establish and improve the social security system, appropriately improve the distribution pattern of national income, and increase the income level and consumption level of the middle and lower class residents, so as to increase consumption demand.

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Expansionary monetary policy stimulates aggregate demand by increasing the growth rate of the money supply. Under this policy, it is easier to obtain credit and interest rates are lowered.Therefore, an expansionary monetary policy is most appropriate when aggregate demand is low relative to the economy's productive capacity.

Contractionary monetary policy reduces the level of aggregate demand by reducing the growth rate of the money supply. Under this policy, it is more difficult to obtain credit and interest rates increase accordingly.Therefore, when inflation is serious, it is more appropriate to adopt a contractionary monetary policy.

(End of this chapter)