Remedies to Control Trade Cycle
Remedies to control the Trade cycle Monetary policy
- Bank rate
The central bank can increase bank rate when there is prosperity. The bank rate can be reduced in case of depression the borrowing and lending is make according depression the borrowing and lending is made according to bank rate. The commercial banks help the central bank to control trade cycle.
- Market operation
The central bank can buy and sell bills and government securities. When money supply is less as compared to its demand the central bank buy the securities and vice versa. For the purpose of regulate supply.
- Reserve ratio
The central bank can increase or decrease the reserve ratio. The ratio of reserve is decreased during depression and increase in expansion.
- Selective control
The central bank can provide credit to one sector at low rates and at high rate for another sector. The central bank can check the loans granted by commercial banks, to control trade cycle.
Fiscal policy
- Public work
The government can start public words program during depression and stop construction of various proje ts during good trade period. Public works program help to control trade cycle.
- Taxes
The state can increase or decrease rates of taxes. The government can raise more taxes or Contraction of money supply. The tax rates may be lowered to provide excess money supply.
- Budget
The government can prepare surplus budget during boom period. There is need of deficit budget during deflation. The government can use budgetary measure along with other methods to control trade cycle.
- Public debt
The government must take loans during depression to meet various needs. In case of boom the debt should be repaid. The government can overcome the difficulties of low business activity through public debt.
- Imports
The government can allow import of goods, which are needed by public. During depression there is no need to import the items, but when there is boom period the supply of goods can be maintained through imports.
International measures
- Production
The production control measure can be made at international level. The goods produced in excess of demand create from such stock. In case of excess production they hold sups stock. Control over supply means control over trade cycle.
- Buffer stock
Buffer stock can be kept in warehouses. When production is low the suppliers can meet the demand from such stock. Encase of excess demand production they hold surplus stock. Control over supply means control over trade cycle.
- Investment control
The government may allow investment in an area where there is low investment. Excess investment in any sector may lead towards depression. There is need for balanced investment in all economic sectors.
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