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Economics · 2022 · 3 marks
CBSE 2022 · Region 2 · Set 3 · Q9
Define Inflationary Gap. State, how the Central Bank of an economy can control the situation of inflationary gap, using any monetary policy measure.
Define Inflationary Gap. State, how the Central Bank of an economy can control the situation of inflationary gap, using any monetary policy measure.
Marking-scheme solution
Inflationary gap refers to the situation when Aggregate Demand is greater than Aggregate Supply, corresponding to full employment level of output.To correct the situation of inflationary gap, the Central Bank may raise Legal Reserve Ratio, which may lead to lesser availability of funds with commercial banks for lending. Consequently, this may reduce the credit creation capacity of the commercial banks leading to reduction in Aggregate Demand and helps to manage inflationary gap.
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CBSE Class 12 Economics past-paper question from the 2022 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.