‘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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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years and a teacher from the past 17 years. He teaches Science, Economics, Accounting and English at Teachoo