Measures to Control Trade Cycles

The following are some of the measures to control business cycles.

1. Monetary Policy: Some economists advocated monetary measures to control business cycles. The central bank can practice monetary measures to control trade cycles. The Central. Bank uses both quantitative and qualitative measures to control credit. During the period 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 to the 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 banks and the public to increase the credit creation of banks and the purchasing power of the people. The 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 Policy: 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 of prosperity or inflation, public expenditure should be reduced. Taxation and public borrowing should be increased. The government adopts surplus budgets. All these measures can reduce the incomes of the people, leading to a fall in aggregate demand. This can arrest the expansion of business.

3. Price Support: During the period of depression prices begin to fall. This has a cumulative effect. So it is harmful. To avoid this, a price support policy should be adopted. Minimum prices should be provided. If prices fall below a minimum level, the government purchases all the goods at support prices in the market.

4. Price Control: To control inflation or rising prices, price control measures should be introduced. That means prices must be kept under check.

5. State control over investment: The government should control private investment in order to prevent over investment and thereby the boom.