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Economies all across the globe are facing the problem of deficient demand post covid 19. Such a situation in India can be corrected by: (Choose the correct alternative). |
Selling government securities to Commercial Banks by the Reserve Bank of India. Raising of the margin requirements by the Reserve Bank of India. Reducing the reverse repo rate by the Reserve Bank of India. Raising of the bank rate by the Reserve Bank of India. |
Reducing the reverse repo rate by the Reserve Bank of India. |
Deficient demand refers to the situation when aggregate demand is short of aggregate supply corresponding to the full employment level in the economy. In order to control the inadequate demand or deflationary gap in the economy, the money supply needs to be expanded. As a result, aggregate demand and purchasing power will rise.
When commercial banks have surplus funds they park them will the central bank for a certain rate of interest. This interest is called as "Reverse repo rate". When there will be a decline in the rate, it will discourage the banks to park their surplus funds with the RBI and prefer lending them, resulting in an increased money supply in the economy. Hence, option 3 is the correct answer.
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