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Thursday, 26 May 2011

Discuss the various measures which should be adopted to fight against the business fluctuations

Following are the main measures which can be suggested for the effective control of business fluctuations :

1. Monetary Policy :-

Monetary policy refers to all these measures which are taken with a view to control money and credit supply in the country. When there is full employment and we are facing inflation the central bank can reduces the total quantity of money in circulation. The bank can adopt different measures like bank rate policy, open market operation or rationing of credit.
On the other hand in case of deflation the central bank can increase the quantity of money by lowering the bank rate, or purchasing the securities.
Monetary policy has achieved very limited success in the past, because central bank has not full powers over the supply of money and credit in the country. Moreover the quantity theory of money has failed during the world depression.

2. Fiscal Policy :-

Fiscal policy involves the process of shaping the public finance with a view to reduce fluctuations in the business and attainment of full employment without inflation.
In case of inflation Govt. curtails the public works programmed. Imposes heavy taxes discourages private investment, reduce the purchasing surplus budget.
In case of deflation the Govt. spends money on the construction of canals, roads and offices. Increase in Govt. expenditure increases the income, employment, profit and consumption of the people. Deficit budget is prepared and tax holidays are given.
The fiscal policy must be co-ordinates with the monetary policy to improve its efficiency.

3. International Measures :-

Today every country has trade relation, with the rest of the world. If there is inflation or deflation in one country it can be easily carried to other countries, the example of great depression can be given. Business cycle is an international phenomena and it should tackled on international level. Different measures have been suggested by the economists to control the business fluctuation efficiency. Such as
1 ). Control of international production
2 ). International Bill stock control international investment control.

4. State Control on Private Investment :-

Some economists have suggested that if Govt. controls the private investment, the cyclical fluctuations can be controlled within limits while the other economists who disagree with the above view, they say that private investment will be discouraged. Low investment will reduce employment and income. J.M.Keynes says that if we adopt the middle way we can control the fluctuations.

5. Re-Organization of Economic System :-

Some economists suggest that there should be re-organization of the whole economic system. The capitalistic economic system should be replaced by the socialistic system.Because in socialistic economy there are a few chances of cyclical fluctuation. In 1930 when all depression, it was only socialistic countries which remained free from crises.

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