Which one of the following is a measure that can be used by the Govern

Which one of the following is a measure that can be used by the Government for combating inflation?

[amp_mcq option1=”Increasing the non-planned expenditure on defence, police, etc.” option2=”Providing more subsidies on exports” option3=”Increasing the rate of interest on savings and fixed deposits” option4=”Reduction in the cash reserve ratio (CRR)” correct=”option3″]

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UPSC CDS-1 – 2023

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Increasing the rate of interest on savings and fixed deposits (implying a general increase in interest rates) is a monetary policy measure used to combat inflation.

Raising interest rates makes borrowing more expensive and encourages saving, thereby reducing aggregate demand and curbing inflation.

Measures to combat inflation include contractionary monetary policy (like increasing repo rate, reverse repo rate, CRR, SLR) and contractionary fiscal policy (like reducing government expenditure or increasing taxes). Options A, B, and D would generally tend to increase aggregate demand or reduce supply, potentially worsening inflation.

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