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Merits AND Demerits OF Credit Controls
Economics
University of Calcutta
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MERITS AND DEMERITS OF CREDIT CONTROLS
Credit control refers to the policy measures used by central banks or other regulatory authorities to influence the availability and cost of credit in the economy. Credit control can have both positive and negative effects on the economy, which are discussed in detail below. Merits of Credit Control: 1. Inflation Control: One of the primary merits of credit control is that it can help to control inflation. By restricting the amount of credit available in the economy, central banks can limit the amount of money chasing goods and services. This, in turn, can help to keep prices stable and prevent inflation. 2. Financial Stability: Credit control can also help to promote financial stability. By regulating the availability and cost of credit, central banks can prevent excessive risk-taking by banks and other financial institutions, reducing the likelihood of financial crises and instability. 3. Promotes Investment: Credit control can also be used to promote investment in specific sectors or industries. By offering preferential credit terms or subsidies to these sectors, central banks can encourage investment and promote economic growth. 4. Promotes Fairness: Credit control can also be used to promote fairness and
equality in the economy. By regulating access to credit, central banks can prevent certain groups or individuals from monopolizing credit markets and ensure that credit is available to all. Demerits of Credit Control: 5. Restricts Economic Growth: One of the primary demerits of credit control is that it can restrict economic growth. By limiting the availability of credit, central banks can reduce investment and consumption, leading to slower economic growth. 6. May Disadvantage Certain Sectors: Credit control measures may also disadvantage certain sectors or industries, particularly those that rely heavily on credit. This can lead to a lack of investment and slower growth in these sectors, ultimately hurting the economy as a whole. 7. May Reduce Competition: Credit control measures can also reduce competition in the banking sector. By limiting the availability of credit, central banks may make it more difficult for new entrants to compete with established banks, leading to reduced competition and higher prices for consumers. 8. May Have Unintended Consequences: Finally, credit control measures can have unintended consequences. For example, credit controls that are too stringent may lead to credit rationing, making it difficult for some businesses and individuals to access credit. Additionally, credit controls may create market distortions or incentives for risky behavior. Overall, credit control can be a useful tool for promoting economic stability and growth. However, policymakers must carefully consider the potential costs and benefits of credit control measures, taking into account the specific economic context and objectives.
Merits AND Demerits OF Credit Controls
Course: Economics
University: University of Calcutta
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