Business cycles are very harmful to the economy because they create economic fluctuations. During the period of prosperity, prices rise, leading slot vietnam to inflation. During depression there will be large scale unemployment. Prices fall and income will fall. Hence business cycles are not desirable.
Measures To Control Business Cycles
The following are some of the measures to control business cycles.
1. Monetary policy: Some economists advocated the monetary measure’s to control business cycles. The central bank can practice the monetary measures to slot thailand control trade cycles. The Central. Bank uses both quantitative and qualitative measures to control credit. During the terms of inflation it can increase the bank rate and it leads to higher interest rates in the money market. Thus, expansion is checked. It can also sell its securities for public. As a result the excessive purchasing power of people decreases. It can also increase cash reserve ratios CRR to reduce the credit creation of commercial banks.
In the same way, during the period of depression the Central Bank can reduce the Bank rate to stimulate investment. It can purchase securities from bank and slot777 public to increase the credit creation of banks and the purchasing power of the people. Cash reserve ratio to be kept by the commercial banks is lowered enabling them to give more credit. As a result, money and credit are increased. Due to these measures the economy can take an upward movement.
2. Fiscal measures: Keynes advocates fiscal measures to control trade cycles. Budgetary measures, taxation, public expenditure and public debt should be used to control trade cycles. During the period Of depression the government should increase its expenditure and increase aggregate demand. The government should increase its expenditure by deficit budgeting. The government spends large sums of money on public works like roads, projects etc. and consequently employment will be increased.
This will arrest the fall of prices of goods and unemployment in those industries. This can mitigate suffering and revival will start. During the period joker123 of prosperity or inflation, public expenditure should be reduced. Taxation and public borrowing should be increased. The government adopt surplus budgets. All these measures can reduce the incomes of the people, leading to a fall in the aggregate demand. This can arrest the expansion of business.
3. Price control : To control inflation or rising prices, price control measures should be introduced. That means prices must he kept under check.
4. Price support : During the period mahjong ways of depression prices begin t fall. This has cumulative effect. So it is harmful. To avoid this, price support policy should be adopted. Minimum prices should be provided. If prices fall below a minimum level, government purchases all the goods at support prices in the market.
5. Socialistic measures: Socialists recommended replacement or capitalist economy by a socialistic system of production and distribution. When this is done, there would be a completely planned economy and all fears of over-investment and over production would be brought to an end.
6. Reduction of economic inequalities : Inequalities of income should be reduced. This can be done by raising the wage levels and ensuring more equitable distribution of national income by increased taxation. This will reduce inequalities in the distribution of income and wealth and thereby will remove the “under consumption tendency.
7. State control over investment : The government should control private investment in order to prevent over improvement and thereby the boom.
Though the government has taken a number of steps, business cycles could not be controlled. The business cycle seems to have become an almost natural feature of the present economic order so that none of these remedies can be expected to root it out. However, to get desirable results both monetary and fiscal policies should be combined and implemented effectively.