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 : Demand curves when longer periods are

Whenever longer periods are considered and hence bigger ranges of adjustments (that is, substitutions) become probable, demand curves tend to become: (i) Flatter, and therefore do supply curves. (ii) Flatter, as supply curves become steeper. (iii) Ste

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 : Define Administrative revenue

Administrative revenue: Administrative revenueis the revenue which occurs on account of the administrative function of government. It comprise: (a) Fees (college/school) (b) License fees paid to obtain permission to carry out a service (c) Fines and p

Q : What is long run supply curve Please

Please brief the knowledge what is long run supply?

Q : Analyzing number of event that

How can we analyze the number of event that influences the market?

Q : Potential GDP The hypothetical

The hypothetical information in the following table shows what the economic situation will be in 2015 if the Fed does not use monetary policy: Year Potential GDP Real GDP Price Level 2014 $15.2 trillion $15.2 trillion 110.0 2015 $15.6 trillion $15.8 trillion

Q : Surplus of the good Describe when there

Describe when there will be a surplus of the good?

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 : Levels of income with no exceptions for

A flat rate income tax for all levels of income along with no exceptions would be taken as a: (i) proportional tax. (ii) progressive tax. (iii) regressive tax. (iv) common tax. Can anybody suggest me the proper exp

Q : Problem on tax system In the figure

In the figure shown below, line T0 depicts a tax system which is: (1) Progressive. (2) Regressive. (3) Proportional. (4) Unbiased. (5) Recessive. 386</span></p>
</div>

</li>

</td>
</tr>
</table>

</ul>

</div>
</div>
<div class=

Discover Q & A

Leading Solution Library

Avail More Than 1440126 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1932544
Asked

3,689

Active Tutors

1440126

Questions
Answered

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

Submit Assignment