Following are the main measure which can be suggested for the effective control of business cycle fluctuation.
1. Monetary Policy
2. Fiscal Policy
3. State Control of Private Investment
4. International Measures to Control of Business Cycle Fluctuation
5. Reorganization of Economic System
1. Monetary Policy A Control of Business Cycle
Monetary policy as measure to control business cycle fluctuation refers to all those measures which are taken with a view to control money and credit supply in the country. When we are in the state of full employment and we are facing inflation, a deflationary policy may be adopted. The central bank can reduced the quantity of money in circulation. The bank can adopt different measures for this purpose, like increase in the bank rate, selling of securities in the market, increasing the reserve ratio of the member banks etc.
On the other hand, in case of deflation the central bank can adopt inflationary monetary policy by lowering the bank rates or purchase of securities. Monetary policy has achieved a very limited success in the past, because central bank has not full power over the supply of money and credit in the country. Moreover, the quantity of money has failed during the world depression of 1930s.
2. Fiscal Policy Measure to Control of Business Cycle Fluctuation
Fiscal policy as measure to control business cycle fluctuation nowadays is considered to be a powerful anti-cycle weapon in the hands of the government. Fiscal policy involves the process of shaping the public finance (income and expenditure) with a view of reduce fluctuations in the business cycle and attainment of full employment without inflation.
In case of inflation the governments reduces the public work programs, imposing heavy taxes on business profits to discourage private investment, reduces purchasers power, taking loans from the people, prepares surplus budget to reduce public debt. All these fiscal measures greatly help in reducing the inflationary trend in the economy.
If the economy facing depression, the government increases it expenditure on public works programs like construction of new canals, new roads, buildings etc. Increase in government expenditure, income, employment, profit and consumption of the people. In order to encourage private investment the government reduces taxes on profit. The government also prepares deficit budget and the deficit is met by loans. All these fiscal measures to control business cycle sets in upswing in the economy.
3. State Control of Private Investment
Some economists have suggested that if a government takes control of private investment is a tool to control of business cycle fluctuations can be controlled within the limits. The other economists, who disagree with the above view state that if a government takes control of private investment, private investment will be discouraged. Low investment will reduce employment and income. J.M Keynes is of the view that if we adopt the middle way we can get control of business cycle fluctuation.
4. International Measures Control of Business Cycle
Today, every country has trade relations with the rest of the world. If there is inflation or deflation in one country, it can be easily carried to other countries. The example of great depression can be given. Business cycle is an international phenomenon and it should be tackled on international level. Different measures to control business cycle fluctuations have been suggested by some well-known economists these are:
- Control of International Production
- International Bill Stock Control
- International Investment Control
5. Reorganization of Economic System
Some economists suggest that there should be complete reorganization of the whole economic system to control of business cycle fluctuation. The capitalistic system of production should be replaced by the socialistic system of production. In socialistic economy, there are few chances of cyclic fluctuations. In 1930, when all capitalist countries of the world were suffering from depression, it was only socialist countries which were free from such crisis.