The correct answer is Option (4) → (D), (B), (A), (C)
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(D) Aggregate demand falls short of aggregate supply, corresponding to full employment in the economy: This is the initial problem. It describes a situation of deficient demand or a deflationary gap. At the full employment level of output, the total demand for goods and services is less than what the economy can potentially supply. This signals a recessionary tendency.
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(B) Involuntary unemployment situation in the economy: As a direct consequence of deficient demand (from D), firms find that they cannot sell all they produce. This leads them to cut back on production, which in turn results in involuntary unemployment. Workers who are willing and able to work at the prevailing wage rate cannot find jobs.
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(A) Reduction in cash reserve ratio by the Reserve Bank: In response to the deficient demand and unemployment (B), the central bank (Reserve Bank) will likely implement an expansionary monetary policy. Reducing the Cash Reserve Ratio (CRR) is a tool for this. A lower CRR means commercial banks are required to hold less money as reserves with the RBI, freeing up more funds for lending.
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(C) Increase in credit availability in the capital market: The reduction in CRR (A) directly leads to commercial banks having more funds available to lend. This increases the supply of credit in the capital market, making loans more accessible and potentially cheaper for businesses and consumers. This increased credit availability then stimulates investment and consumption, ultimately boosting aggregate demand and helping the economy move towards full employment.
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