During deficient demand, RBI _____ the margin.

Decrease

The correct answer is Option (1) → Decrease

During deficient demand, there is insufficient spending in the economy, leading to low output, income, and employment. To correct this, the Reserve Bank of India (RBI) uses expansionary monetary policy tools to encourage borrowing and investment. One such tool is changing the margin requirement.

• Margin requirement is the difference between the market value of a loan security and the loan amount given by banks.

• By decreasing the margin, the RBI allows borrowers to get larger loans against the same security, which increases credit flow in the economy.