Anti-inflation policy, Tough fiscal policy, Rigid monetary policy...

Anti-inflation policy

Let us now turn to a detailed analysis of the anti-inflationary policy. How can the state cope with high rates of price growth? And what is the price that the economy will have to pay for this?

Tough Fiscal Policy

To reduce the rate of price growth, it is necessary to control the causes of this phenomenon. One of the reasons may be connected with the excessively mild fiscal policy of the state, accompanied by a high and growing deficit of the state budget. To cope with inflation, it is necessary to reduce the deficit of the state budget, i.е. reducing public spending and increasing tax collection.

Rigid Monetary Policy

The second key point of the anti-inflationary policy is a reduction in the growth rates of the monetary base. A tough monetary policy is needed that ensures that excessive "swelling" the money supply will not happen. Such policies may include restrictions on printing money, raising the refinancing rate and tightening the Central Bank's discount policy, as well as selling government bonds on the open market, foreign exchange interventions (selling foreign currency and international reserves). The specific variant of the central bank's actions depends on the country's capabilities and the concomitant economic effects.

Income policy

Large expenditures of aggregate demand can often be caused by too high incomes in the economy, which are not comparable with the growth rates of labor productivity. To control this part of the inflationary process, the state has to intervene in the private sector, in particular, in the functioning of the labor market. The state can impose taxes on excessive wage growth, which is not associated with productivity growth, offer a temporary freeze in wage growth, restrict - formally or informally - the size of bonuses and other additional payments to senior managers of large companies and banks. In addition, options are possible that are lower than the rate of inflation, indexation of pensions and other social expenditures of the state, as well as the salaries of civil servants and government officials.

The income policy, although it is a sufficiently effective measure in the short run and is capable of quickly destroying inflationary growth, is popular among public figures. This is due to the fact that such a policy has a long-term negative effect on the labor market, distorts price proportions, reduces employee motivation and destroys private incentives for development, since it disproportionately affects different aspects of the labor market, different professions and different categories of workers. Restrictive actions of the state in this area can also cause the growth of social tension and public discontent in the country.

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