3. Case: The Indian economy: Dealing with inflationQuestion (a)The question intends to examine the factors that were responsible for the inflationary trend in India in early 2007.The answer clearly explains the factors like increase in the domestic food prices, increase in the international prices of wheat, increase in the demand for food items, sharp increase in the agricultural prices and prices of manufactured products increase in the money supply and high economic growth which were responsible for the inflationary trend in India in early 2007.However the answer could have discussed the other factors such as increase in the forex inflows which also led to the inflationary trend in India in early 2007.Question (b)The question intends to analyze the measures taken by the Indian Government and the RBI to control inflation and the impact of dealing with inflation through monetary means on the economic growth. The answer explains various monetary measures taken by the Reserve Bank of India to control inflation such as increase in repo rates, cash reserve ratio etc. The answer also discusses various other policy measures taken by the government of India to control inflation such as reducing import duties for rice, wheat, pulses, cooking oils and cement and other products, banning future trade of wheat, rice and pulses, raising taxes on all products covered under excise, customs and service tax including education cess, reducing import duties on non-agricultural products etc. The answer also discussed the increasing repo rates and CRR rates by the Reserve Bank of India would affect the small and medium enterprises (SMEs) and ultimately hamper the employment opportunities in the country. However, the answer could have discussed how higher interest rate in the economy would affect various sector of the economy such as banking, automobiles and textiles etc.