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‘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.
(5 Marks)
Answer
Monetary measures that can provide a solution to the problem:
a) Increase in Cash Reserve Ratio (CRR)
This will reducing the lending capacity of the commercial banks
Thus there will be less money available with the people and Aggregate Demand of the economy will fall
This will correct the inflationary gap in the economy.
b) Sale of Government Securities
This will decrease the money available with the public and Aggregate Demand of the economy will fall
Thus the inflationary gap in the economy will be created.
