Measures to correct demand pull inflation
- Restrictive monetary policy;- This measure reduces , money supply in the economy by selling government securities, increasing the bank rates, increasing legal reserve requirements etc.
- Restrictive fiscal policy:-This involves the reduction in government expenditure and increasing direct taxes so as to reduce the disposable incomes and the purchasing power of the public.
- Restrictive income policies:-This is where the government fixes a maximum wage in order to reduce the purchasing power of the consumers and the gap between demand and supply. The wages are kept constant through wage freeze so that the workers demand stays constant to avoid demand exceeding supply.
- Price Policy :-The government controls the prices of the major commodities by fixing maximum prices of essential commodities like salt, sugar, soap etc. This helps to prevent prices from rising continuously, However, this measure is not very effective because it does not address the root cause of inflation but merely the symptom.
- Increased importation of goods:- The supply can be increased by importing from other countries. This policy includes reducing restrictions on imports so as to increase the supply of goods in the economy in order to reduce pressure of aggregate demand on domestic goods.
- Increased inflow of foreign investments:-Since this type of inflation occurs in a period of full employment, when there are no additional resources for production, the government can encourage foreign investors to bring' in more resources so as to raise output.
- Organisational control: This includes the control of the distribution outlets accompanied by rationing so that every consumer gets a share of the commodity.
- Currency reform:- This involves the issue of new currency to replace the old ones. It is normally used when a" the other measures have failed: and is usually applied during hyperinflation e.g. the currency exchange in Uganda in 1987 when two zeros where knocked off and a 30% tax imposed.