1, control the money supply.
Because inflation is a monetary phenomenon under the condition of paper money circulation, the most direct reason is that there is too much money in circulation. Therefore, one of the important countermeasures for countries to control inflation is to control the money supply, make it adapt to the money demand, and reduce the pressure of currency depreciation and inflation.
2. Control the total social demand.
For demand-driven inflation, regulating the total social demand is a key. This is mainly achieved through the implementation of correct fiscal and monetary policies. In fiscal policy, it can be achieved by tightening fiscal expenditure, increasing taxes, seeking budget balance and reducing fiscal deficit.
In terms of monetary policy, it is mainly to tighten credit, control the money supply and reduce the money supply. The important way to comprehensively control inflation by fiscal policy and monetary policy is to control the total social demand by controlling the scale of investment in fixed assets and the excessive growth of consumption funds.
Inflation refers to the phenomenon that under the condition of currency circulation, because the money supply is greater than the actual demand of money, that is, the actual purchasing power is greater than the output supply, which leads to the devaluation of money and the sustained and general rise of prices for a period of time. Its essence is that the total social demand is greater than the total social supply (demand is far greater than supply).
In monetarist economics, the reason is that when the amount of money in the market exceeds the amount of money needed in circulation, paper money will depreciate, prices will rise, leading to a decline in purchasing power, which is inflation. This theory is summed up in a very famous equation: MV=PT.
Extended data:
There are five differences with deflation:
1, meaning and essence are different:
Inflation refers to the economic phenomenon that the circulation of paper money exceeds the amount needed for circulation, which leads to the devaluation of paper money and the rise of prices. Its essence is that the total social demand is greater than the total social supply; Deflation is an economic phenomenon opposite to inflation. It refers to an economic phenomenon that the overall price level has been declining for a long time and the currency has been appreciating continuously during the period of relative economic contraction. Its essence is that the total social demand is less than the total social supply.
2, the performance is different:
The most direct manifestation of inflation is the devaluation of paper money, rising prices and declining purchasing power. Deflation is often accompanied by declining production, shrinking market, declining profit rate of enterprises, decreasing production investment, increasing unemployment, decreasing income and weak economic growth. Mainly manifested in the low price, the price of most goods and services fell.
3. The reasons are different:
The main reason for inflation is that the total social demand is greater than the total social supply, and the amount of money in circulation exceeds the amount of money actually needed in circulation. The main reason of deflation is that the total social demand is less than the total social supply, and the long-term industrial structure is unreasonable, making it difficult to form a buyer's market and export.
4. Different harmfulness:
Inflation directly devalues paper money. If the income of residents remains unchanged, the living standard will decline, which will lead to the disorder of social and economic life and is not conducive to economic development. However, in a certain period of time, moderate inflation can stimulate consumption, expand domestic demand and promote economic development.
Deflation leads to price drop, which is beneficial to residents' life, but it will seriously affect investors' confidence and residents' consumption psychology in the long run, leading to vicious price competition, which is unfavorable to long-term economic development and people's long-term interests.
5. Different governance measures:
The most fundamental measure to control inflation is to develop production and increase effective supply. At the same time, we should take measures such as controlling the money supply, implementing a moderately tight monetary policy and living within our means. To control deflation, we should adjust and optimize the industrial structure, comprehensively use investment, consumption, export and other measures to stimulate economic growth, implement a proactive fiscal policy, a prudent monetary policy and a correct consumption policy, and adhere to the policy of expanding domestic demand.
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