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 : Objective of government Budget Give

Give some objective of government Budget. Answer: The objectives which are pursued by government via the budget are as follows: A) To attain economic growth. B) To decrease in equalities in income and wealth.

Q : Base of categorizing receipts into

What is the base of categorizing receipts into revenue and capital receipts?

Q : Why businessmen prefer current bank

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

Q : Full-employment Define the "

Define the "full-employment" or "natural" rate of unemployment and give its approximate percentage rate as economists currently define it.

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 : Difference between

Elucidate the differences among the frictional, structural, and cyclical forms of unemployment.

Q : Relationship between interest rate and

What is the relationship among interest rate and bond prices? Is there any difference among T-Bills versus Corporate bonds in reaching your assessment? Whenever the stock market falls, where do you assume that most investor place their money and why?<

Q : Rates of addiction and existence in a

Harsher punishments for drug dealers than for addicts can’t be blamed for higher: (1) rates of police corruption because main dealers can present big bribes. (2) rates of street crime by addicts. (3) profits reaped by successful pushers who are uncaught. (4) rat

Q : Problem on full employment Does full

Does full employment take place if AD = AS or S = I?

Q : Reduction in quantity When equilibrium

When equilibrium moves from point a to point b in the figure shown below, the only market experiencing a reduction in quantity supplied is illustrated in: (1) Panel A. (2) Panel B. (3) Panel C. (4) Panel D.

Discover Q & A

Leading Solution Library

Avail More Than 1438215 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1928090
Asked

3,689

Active Tutors

1438215

Questions
Answered

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

Submit Assignment