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.

View Complete Question

Related Questions in Macroeconomics

Q : Problem on production function Consider

Consider a model economy with a production function Y = K0.2(EL)0.8, where K is capital stock, L is labor input, and Y is output. The savings rate (s), which is defined as

Q : If households If households become more

If households become more willing to hold less cash and more stocks or bonds, the

Q : Shifting of market problem When this

When this market starts in equilibrium at point e on S0D0 and then young American families rousingly “inherit” furniture as their baby-boomer parents shift into smaller retirement homes, then this market will tend to shift in the direction of: (i) point i.

Q : Purchasing good according to Law of

The market price you pay for each and every particular goods you purchase regularly is probably most closely associated with the last unit of each and every good’s: (1) Marginal utility. (2) Total utility. (3) Producer surplus. (4) Consumer surplus. (5) Economic

Q : What is Bank rate Bank rate : This is

Bank rate: This is the rate at which the central bank loans money to commercial bank.

Q : Assignment Task 1 – Commercial banks in

Task 1 – Commercial banks in United Economy have total deposits of AED 300 billion. Their reserves are AED 15 billion, two- thirds of which are with the Central Bank as deposits. There are AED 30 billion notes outside the banks. There are no coins! Calculate- a) The monetary base. b) The bank

Q : Explain growth accounting. Economic

Economic growth is measured by the rate of increase in national output, GDP. The output depends on inputs -labour, capital technology etc. the theories of economic growth bring out how and to what extent each input or factor contributes to the g

Q : Domestic inflation of fixed or managed

Question: A county with a fixed or managed exchange rate would consider i.___________________ its currency if the country is worried about domestic inflation. ii. Briefly Explain?

Q : Greatest Consumer Surplus problem I

I have a problem in economics on Greatest Consumer Surplus. Please help me in the following question. Usual Americans undoubtedly derive the greatest consumer surpluses from the: (i) Summer vacations. (ii) Jelly and Peanut butter. (iii) Gold jewellery

Q : Price elasticity of demand for DVD games

In this figure shown below, the price elasticity of demand for DVD games among prices of $30 and $40 is nearest to: (i) 7/6. (ii) 1/2. (iii) 3/7. (iv) 7/3. (v) 1/3.

Discover Q & A

Leading Solution Library

Avail More Than 1425660 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1930555
Asked

3,689

Active Tutors

1425660

Questions
Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment