Non-monetary policy for controlling excess and deficient demands

Non-monetary policy for controlling excess demand and deficient demand involves:

i. Expansion and contraction of output

ii. Suitable wage policy

iii. Price control and rationing.

i. Contraction and expansion of output:

Inflationary situation caused due to excess demand can be controlled by bringing about expansion of output of essential goods. This is possible by increasing the productivity of labour and capital as well as by fuller utilization of existing capacity of the industries.

On the other hand, a state of deficient demand may be controlled by bringing about contraction in the supply of output.

ii. Suitable wage policy:

To arrest the situation of excess demand and rising prices the suitable wage policy is to stop wage increase unrelated to the productivity of workers.

However, to arrest the situation of deficient demand and falling prices wages may be allowed to increase.

iii. Price control and rationing:

If inflation occurs due to excess demand, Government may control prices by fixing an upper limit to the prices of particular goods.

Besides, government has to streamline the public distribution system and supply essential goods through ration cards at reasonably lower prices to check inflation.