Advertisements
Advertisements
Question
‘Monetary measures offer a valid solution to the problem of Inflationary gap in an economy’. State and discuss any two monetary measures to justify the given statement.
Solution
Two measures which may be used to solve the problem of inflation are:
- An increase in Cash Reserve Ratio (CRR) may reduce the credit creation capacity of the commercial banks in the economy. This may lead to a fall in the borrowings from banks causing a fall in Aggregate Demand in the economy, and helps to correct the inflationary gap in the economy.
- Sale of Government Securities in the open market by the Central Bank will adversely affect the ability of the Commercial Banks to create credit in the economy. As a result Aggregate Demand in the economy may fall and correct the inflationary gap in the economy.
APPEARS IN
RELATED QUESTIONS
What are time deposits?
What is monetary policy?
State any three instruments of monetary policy.
Give reasons or explain the following statement:
Invention of money is the most important invention of human economic history.
State whether the following statement is true or false.
A cheque is a fiat money.
State whether the following statement is True or False :
In the initial stage of human civilisation commodity money was used.
Based on the passage below, answer the following question.
The Monetary Policy Committee of the Reserve Bank of India kept interest rates on hold Thursday even as it vowed to keep policy sufficiently loose to help revive the coronavirus battered economy. Accepting a key demand of lenders and the corporate sector, the central bank cleared a one-time restructuring of loan accounts to bail out stressed borrowers, including personal, small, and medium loans.
The details of the loan restructuring scheme – expected to kick in after the moratorium on loan repayments ends. August 31 – will be worked out by a committee headed by former ICICI Bank Chairman KV Kamath. The RBI also continued to provide support on the liquidity front and opened a new targeted window for small lenders.
The central bank kept the repo rate unchanged at 4 percent and reduced the reverse repo rate to 3:35 percent.
Suppose you are a member of the Monetary Policy Committee of the RBI. You have suggested the _________ of the money supply be ensured to help revive the coronavirus battered economy.
