Government Intervention In Resolving Economic Issues - Term Paper Example

Purpose of the Paper This paper addresses the issues related to economic problems and government intervention to affect the economic scenario and lessen the effects. Further elaborating the main economic problem i.e. Inflation, its controls and different methods to calculate it. Here you will find views of different school of thoughts related to economic problems and their solutions. 1- Economic Problem In ordinary language, inflation means a process of rising prices. A situation is described as inflationary when either the prices or the supply of money are rising .

In other words we can say "Too much money chasing too few goods". Therefore, inflation is a stat of economy in which the value of money is falling i.e. prices are rising. Normally, rate of inflation i.e. increase in average prices level, is measured with the help of price index or GDP deflator. This hazardous economic virus causes many harmful effects to the economy because when inflation increase economy of the country is badly affected. The economic effects that will arise can be. Cost of living is increased, when inflation increases .

These are simply directly proportional to each other. This situation badly affects the labor class i.e. lower class of the country. They have scared financial resources and lots of financial problems to deal with. Increase in street crimes is also one the problems created by inflation directly. When people have burden of problems and frustration due to less financial resources but increasing prices, they jump into the street crimes to fulfill their needs. Inequality in Income Distribution is also part of economic diseases born by inflation.

Here, rich become richer and poor become poorer. An abnormal unbalance is created in the society. This may lead to further social and economical problems in the country. Decrease in savings, also incurs when inflation is in increasing trend. People will spend all what they will earn and saving no penny for the tough time. Rate of interest will also increase due to increase in inflations. 2- Government Intervention A general remedy to the problem can be lessening the aggregate demand and increase in supply of goods.

Two policies by government are working for the control of said problem. Controls of Inflation A- Fiscal Policy: This includes government revenue and expenditures. Here tools in this controlling policy are: Increase in taxes Increase in budget deficits Deficit financing to the Government projects B- Monetary Policy: This constitutes the steps taken by Central Bank to control the supply of money with the aim of achieving economic stability. This can be dining by following two methodologies / measures: Quantitative Measure: Inter bank borrowing rates are increased, along with increase in marginal requirements of cash resaves with Central Banks.

Money Market is operated as open market and Central Bank sells Govt. securities Qualitative Measures: Central Bank work on credit control by the Commercial Banks to control supply of money. Morally Obligation steps are taken e.g. publishing posters and advertisements etc. Works Cited Ludwig von Mises. Epistemologicasl Problems of Economics. New York University Press, 1976.