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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)



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.


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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.