Anti-inflation policy of controlling factors in the cost

Anti-inflationary policy of demand management is called where placino policy and is based on the regulation of effective demand for its limitations through the application of measures of monetary, fiscal and structural-investment policy.

To stimulate or prevent decline of production in the context of anti-inflationary regulation in the direction of avoid lower level of marketable security money to use measures of structural-investment policy, in particular: promoting enterprise development; restriction of monopoly and development of competition; conducting of rational protectionism in relation to national producer; attracting foreign investment; prevention of outflow of capital abroad; the formation of the market of loan capital.

Measures of fiscal policy in the context of anti-inflationary regulation of the economy based on the deficit reduction DB as the main factor of demand inflation, which is due to deficit financing of public expenditure and therefore an increase in the money supply in circulation not backed by material resources (goods and services). Deficit reduction is achieved by increasing budget revenues and budget cuts.

A special place among the anti-inflationary policy is the adaptation policies aimed at the adaptation to inflation. This type of policy is implemented through the mechanisms of indexation of income and redemption of inflation expectations.

Indexation of income can be:

disposable while a simultaneous increase in adjustable and fixed prices for consumer goods and services;

periodic - in the context of continuous rising prices.

But indexing does not eliminate inflation, but only mitigates its negative impact. In turn, the indexation in the budget deficit financed by money emission, can act as an inflationary factor.

Repayment of inflationary expectations is to overcome the fears of the subjects N the EU concerning the depreciation of savings and rise in price of goods, to prevent the reduction and termination of the savings and the increase in excessive current demand which causes the increase in prices and a further strengthening of adaptive inflation expectations), etc., which starts a spiral of spontaneous mechanism of inflation.

As you can see, the implementation of an effective inflation policy requires clear and comprehensive approach to solving the problem of rising prices and the depreciation of the national currency, which must consider various factors and ways of elimination of inflation and their relationship.

The ways of decreasing the level of unemploymnent

here are two main strategies for reducing unemployment –

· Demand side policies to reduce demand-deficient unemployment (unemployment caused by recession)

· Supply side policies to reduce structural unemployment / (the natural rate of unemployment)

A quick list of policies to reduce unemployment:

1. Monetary policy – cutting interest rates to boost Aggregate Demand (AD)

2. Fiscal policy – cutting taxes to boost AD.

3. Education and training to help reduce structural unemployment.

4. Geographical subsidies to encourage firms to invest in depressed areas.

5. Lower minimum wage to reduce real wage unemployment.

6. More flexible labour markets, to make it easier to hire and fire workers.

Demand side policies

US and UK were more successful in reducing unemployment after 2008/09 recession.

Demand side policies are critical when there is a recession and rise in cyclical unemployment. (e.g. after 1991 recession and after 2008 recession)

Fiscal Policy

Fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate of economic growth. The government will need to pursue expansionary fiscal policy; this involves cutting taxes and increasing government spending. Lower taxes increase disposable income (e.g. VAT cut to 15% in 2008) and therefore help to increase consumption, leading to higher aggregate demand (AD).

With an increase in AD, there will be an increase in Real GDP (as long as there is spare capacity in the economy.) If firms produce more, there will be an increase in demand for workers and therefore lower demand-deficient unemployment. Also, with higher aggregate demand and strong economic growth, fewer firms will go bankrupt meaning fewer job losses.

Keynes was an active advocate of expansionary fiscal policy during a prolonged recession. He argues that in a recession, resources (both capital and labour) are idle. Therefore the government should intervene and create additional demand to reduce unemployment.