--%>
Assignment Help - homework help

How central bank reduce the deflationary gap

Describe any two measures by which a Central Bank can attempt to decrease the gap.

Answer: Central bank can decrease this gap by adopting two measures illustrated below:

Bank rate: Central Bank must reduce the bank rate. The decrease in bank rate lowers the rate of interest and credit becomes low-priced. Consequently, the demand for credit expands and aggregate demand rises.

Open Market Operations: By purchasing the government securities Central Bank injects extra purchasing power into the system that outcomes in the expansion of credit. As an outcome aggregate demand rises.

   Related Questions in Macroeconomics

  • Q : Surplus of the good Describe when there

    Describe when there will be a surplus of the good?

    		•
  • Q : Expanding consumption of a good I have

    I have a problem in economics on Expanding consumption of a good. Please help me in the following question. Your consumption of a good tends to expand if it’s: (i) Relative marginal utility surpasses its relative price. (ii) Total utility is les

    		•
  • Q : Utilization of Bond market to make and

    How does the FED utilize the bond market to make and destroy money? Which technique do developed countries utilize to decrease the chance of experiencing inflation? What about the Banana Republicans and inflation, do they have this means acessible to

    		•
  • Q : Tax shifting forward totally A tax is

    A tax is shifted forward when the tax burden causes the: (w) consumers to pay higher prices. (x) lower purchasing power for the party bearing the legal incidence. (y) workers to experience lower take home wages. (z) decreased dividends to corporate st

    		•
  • Q : What is multiplier Multiplier : The

    Multiplier: The Multiplier is the ratio of change in income by the change in investment. Multiplier (k) = ΔY/ΔI

    		•
  • Q : Components of aggregate demand What are

    What are the components of aggregate demand (AD)? Answer: The components of AD are as follows:AD = C + I + G + (X - M) By Simplifying AD = C + I, Here C refers to Household consumption demand and I refer

    		•
  • Q : Nominal GNP problem The value of

    The value of nominal GNP of an economy was Rs. 2,500 crores in a specific year. The value of GNP of that country throughout the same year, computed at the prices of some base year was Rs.3000 crores. Evaluate the value of GNP deflator of the year in terms of percentag

    		•
  • Q : Main concerns of microeconomics Can

    Can someone explain/help me with best solution about problem of microeconomics in economic... Main concerns of microeconomics would consist of: (w) rates of inflation. (x) consumer options. (y) rates of unemploymen

    		•
  • Q : Would inflation targeting be a good

    Question: Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment?

    Q : What are the strength and weakness What

    What are the strength and weakness of using per capital national income? give explained answer for query

    		•