The policies that a country should adopt to close/eliminate an inflationary gap

The policies that a country should adopt to close/eliminate an inflationary gap

Decrease aggregate demand or increase supply through

  1. Reducing  government    expenditure    for example  cutting  down  wages  and  salaries  paid  to workers
  2. Encouraging    investors as a way of increasing the production   of goods and services
  3. Increasing  direct  taxes  so as to reduce  on the disposable   incomes  of the people
  4. Using restrictive monetary  policies   aimed at reducing money supply and aggregate     For example selling government   securities to the public and increasing   the bank rate.
  5. Increase  interest  rates  on loans  to discourage  borrowing
  6. Discourage  the exportation   of goods  and services  which  are scarce  in the economy
  7. Encourage  importation   of goods and services which are scarce  in the economy.
  8. Maximum  wage policy aimed at decreasing the wages and salaries of employees   so as to decrease aggregate demand in the economy.
  9. Increase interest rate to discourage borrowing and reduce money supply
  10. Price control
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