--%>
Assignment Help - homework help

Correcting deflationary gap

Describe the role of given in correcting deflationary gap in an economy.

A) Govt. Expenditure
B) Legal Reserve Ratio

E

Expert

Verified

A) In a condition of deflationary gap or deficient demand. The Govt. must raise its expenditure that is, there will be much more economic activities in the economy such as building of roads, bridges, canal and so on. This will increase the level of exployment. This will in turn raise the income and the purchasing power. Therefore aggregate demand will increase.

B) Throughout deficient demand, central bank decreases the CRR. The outcome of reducing CRR will be view in the surplus cash reserves with the banks that can be offered for credit. The bank?s credit bank decreases SLR, this will have expansionary effect on credit position of the banks leading to rise in thier leading capacity borrowing increases and AD increases.

   Related Questions in Microeconomics

  • Q : Labor Unions and Wage Differentials The

    The counter-argument to the idea which unions cause inflation is that the union negotiated wage hikes: (i) Are not excessive except W > average revenue products. (ii) Set the pattern for non-union wage negotiations. (iii) Tend to outcome in lower salaries in non-un

    		•
  • Q : Bank rate on money supply What will be

    What will be the consequence of a rise or fall in the bank rate on money supply? Answer: It will reduce or raise the money supply.

    		•
  • Q : Total consumer surplus received Assume

    Assume that you gain $36 worth of pleasure from first hole of the golf played on any specific day since you are an avid golfer, however the extra pleasure you profit from playing succeeding holes drops by $2 per additional hole. The $40 greens fee is needed to begin o

    		•
  • Q : Kinked demand curve of an oligopoly

    The kinked demand curve of an oligopoly model supposes: (w) price increases will be followed. (x) price increases will be matched. (y) price declines will be matched. (z) any price changes will be matched.

    Q : Income elasticity of demand Income

    Income elasticity of demand: Income elasticity of demand is the degree of receptiveness of demand to the modification in income.

    Q : Maximizing utility from consumption of

    Given that a MU of French fries of 35 utils and a MU for the serving of potato chips at 25 utils, when their respective prices are $1.50 and $.80, a person who wishes to maximize the utility from the consumption of both of such goods would consume: (1) The similar amo

    		•
  • Q : Examples of pairs of complementary goods

    I have a problem in economics on Examples of pairs of complementary goods. Please help me in the following question. The illustrations of pairs of complementary goods would comprise: (1) Coffee and tea. (2) Butter and margarine. (3) Motor boats and wa

    		•
  • Q : Downward slope of consumer demand curves

    Can someone please help me in finding out the accurate answer from the following question. The downward slope of the consumer demand curves for normal goods is partly described by: (i) Income effects. (ii) Diminishing marginal utility. (iii) Substitution effects. (iv)

    		•
  • Q : Formally effective a cartel To form and

    To form and effectively keep a cartel over time needs that the: (w) bulk of output be produced and sold by a minute number of cartel members. (x) product be relatively heterogeneous. (y) demand for the product be highly elastic. (z) government totall

    		•
  • Q : Combinations of goods in production

    Points exterior to economy’s production possibilities curve exhibit combinations of goods which: (i) Can’t be produced with the economy’s present capacity. (ii) Employ resources proficiently in production. (iii) Don’t utilize t

    		•