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Economics · 2023 · 4 marks
CBSE 2023 · Region 3 · Set 1 · Q14
Read the following information carefully :“The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), recently increased the Repo Rate by $\displaystyle 50$ basis points. The Rate stands today at $\displaystyle 5.40$%, whereas Reverse Repo Rate was left unchanged at $\displaystyle 3.35$%.”Answer the following questions :(i)Identify the nature of the two monetary policy measures mentioned in the above text.(ii)Elaborate the likely economic rationale behind the increase in Repo Rate by the Monetary Policy Committee.Suppose an imaginary economy is facing a situation of deficient demand in the short run time period.Discuss briefly, the probable impacts of the same on the economy.
Read the following information carefully :
“The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), recently increased the Repo Rate by $\displaystyle 50$ basis points. The Rate stands today at $\displaystyle 5.40$%, whereas Reverse Repo Rate was left unchanged at $\displaystyle 3.35$%.”
Answer the following questions :
(i)
Identify the nature of the two monetary policy measures mentioned in the above text.
(ii)
Elaborate the likely economic rationale behind the increase in Repo Rate by the Monetary Policy Committee.
Suppose an imaginary economy is facing a situation of deficient demand in the short run time period.
Discuss briefly, the probable impacts of the same on the economy.
Marking-scheme solution
(a)
The two monetary policy measures mentioned in the above text are of quantitative nature.
(ii)
An increase in the repo rate will force the commercial banks to increase the lending rates, which may make borrowing costlier to the general public. It may discourage general public from borrowing funds. As a result, Aggregate Demand in the economy may decrease, thereby controlling the inflationary pressures in the economy.
Deficient Demand may have an adverse impact on output, employment and income level.
As Aggregate Demand is less than Aggregate Supply at full employment level of income, this may lead to unintended accumulation of inventories. To restore desired/intended level of inventories, producers may contract production which in turn may reduce the employment, output, and income level in the economy. Lack of demand for goods and services may also lead to a fall in the general price level in the economy.
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CBSE Class 12 Economics past-paper question from the 2023board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.