--%>
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 : Recovery of loans-capital receipt Why

    Why is recovery of loans taken as a capital receipt? Answer: Recovery of loans is always treated as a capital receipt since it leads to refuse in financial assets o

    		•
  • Q : Competitive market What do you mean by

    What do you mean by the term Competitive market?

    		•
  • Q : Why businessmen prefer current bank

    Describe why businessmen mostly wish to open current account in bank?

    		•
  • Q : Inflation movements and factors Use

    Use economic theory to explain the inflation movements and factors influencing it. Use relevant models to explain the impact of changes in fiscal and monetary policies in curtailing inflation.

    		•
  • Q : Business cycle What is meant by the

    What is meant by the term business cycle as described by economists?

    		•
  • Q : Business fixed investment-Inventory

    Describe the following terms: (i) Business fixed investment (ii) Inventory Investment (iii) Residential construction Investment (iv) Public Investment.

  • Q : Estimating rational income How will you

    How will you treat the given in estimating rational income of India? Provide reasons for your answer. (i) The value of bonus shares received by the shareholders of a company.(ii) Interest received on loan pro

    		•
  • Q : Calculating National Income Let suppose

    Let suppose NDPFC is Rs. 1,000 crores, and NFA is Rs. (--) 5crores, then what will be national income (NNPFC)? Answer: NNPFC = NDPFC+NFA = 1000 + (-5) = Rs. 995 crores.

    		•
  • Q : Resolving disequilibrium between the

    Assume that you consume bananas and apples, and the marginal utility of the last apple consumed is 6 times the marginal utility of last banana consumed. Though, the price of apples is only 3 times the price of bananas. This disequilibrium among the two goods can be re

    		•
  • Q : Reallocation of resources through budget

    Reallocation of resources: In case, the market economy fails or does not attain the desired social objectives, the government has to interfere via budget and reallocate resources accordingly. Through its budgetary

    		•