2023 · Q85
Which one of the following is a measure that can be used by the Government for combating inflation?
General KnowledgeIndian Economy
- AIncreasing the non-planned expenditure on defence, police, etc.
- BProviding more subsidies on exports
- CIncreasing the rate of interest on savings and fixed deposits
- DReduction in the cash reserve ratio (CRR)
Explanation
Raising the interest rate on savings and fixed deposits encourages households to save rather than spend, reducing aggregate demand and thereby combating inflation. Increasing defence/police expenditure or export subsidies would stoke demand, and reducing the CRR injects liquidity into banks — all inflationary. Hence increasing deposit interest rates is the anti-inflationary measure.