POLICIES TO DEAL WITH INFLATION

1) Monetary policy

2) Fiscal policy

3) Incomes policy

4) Policies to increase supply

5) Price control
 Monetary policy
• It is adopted by the central bank of the country
(central bank of Maldives is MMA) when the bank
feels money supply in the country is very high.
• The three instruments used in this policy are:

• - CRR (Cash Reserve Ratio) –

• Interest rate/bank rate and –

• Securities
• Cash reserve ratio is a percentage of the

deposit kept by the banks as a reserve. The

central bank will instruct all the commercial

banks whether to increase the CRR or not

 CRR

• ↑CRR → ↓supply of loan

→↓money

supply→↓AD→↓price level
• Cash reserve ratio is a percentage of the

deposit kept by the banks as a reserve. The

central bank will instruct all the commercial

banks whether to increase the CRR or not.

 Interest rate/bank rate

• ↑bank rate →↓ demand for

loans→↓money

supply→↓AD→↓price level
 Securities

• Selling securities→↓money

supply→↓AD→↓price level
THANK YOU